<PAGE>
Pruco Life's
Variable Universal Life
[PHOTO]
Semiannual Report to
Contract Owners and
Prospectus Supplement
June 30, 1998
[LOGO] Prudential
The Prudential Insurance Company of America
751 Broad Street
Newark, NJ 07102-3777
VARIABLE INVESTMENT OPTIONS
o The Prudential Series Fund, Inc.
Money Market Portfolio
Diversified Bond Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
o AIM Variable Insurance Funds, Inc.
AIM V.I. Value Fund
o American Century Variable Portfolios, Inc.
American Century VP Value Fund
o Janus Aspen Series
Growth Portfolio
o MFS Variable Investment Trust
Emerging Growth Series
o T. Rowe Price International Series, Inc.
International Stock Portfolio
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[LOGO]
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This Report may be used with the public only when preceded or accompanied by
current prospectuses for The Prudential Series Fund, Inc., the applicable
variable life or variable annuity product, and the current Performance Data
Update for the applicable product. The Performance Data Update shows historical
investment performance after the deduction of investment management fees,
investment-related expenses and the product's Mortality and Expense Risk Charge.
For the variable life insurance products, additional contract charges include
the cost of insurance, administrative, sales and any applicable withdrawal or
surrender charges. These charges will reduce the rates of return shown on the
Performance Data Update. For the variable annuity products, the Performance Data
Update provides returns that are net of all contract charges, including
applicable surrender or withdrawal charges. The prospectuses contain more
information concerning charges and expenses, including hypothetical performance
illustrations that show the effects of performance on various assumptions, and
should be read carefully before you invest or send money.
Variable life and variable annuity products are offered by Pruco Securities
Corp., a subsidiary of The Prudential Insurance Company of America. Both are
located at 751 Broad Street, Newark, NJ 07102-3777.
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Table of Contents
Letter to Contract Owners......................................................2
Market Review..................................................................4
Investment Advisor's Outlook...................................................8
The Prudential Series Fund, Inc. Portfolios...................................10
Money Market Portfolio
Diversified Bond Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
Financial Statements
Schedule of Investments
Notes to Financial Statements
Financial Highlights
Prospectus Supplement
AIM Variable Insurance Funds, Inc............................................101
AIM V.I. Value
American Century Variable Portfolios, Inc....................................115
American Century VP Value Fund
Janus Aspen Series...........................................................139
Janus Aspen Series--Growth Portfolio
MFS Variable Insurance Trust.................................................153
MFS Emerging Growth Series
T. Rowe Price International Series, Inc......................................173
T. Rowe Price International Stock Portfolio
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Six Months Ended June 30, 1998
Letter To Contract Owners
[PHOTO]
Jonathan M. Greene
President
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"Once again, the market reminded us of the critical nature of diversification."
Dear Contract Owner:
We are pleased to provide our Semiannual Report to you on the investment
performance of the portfolios that underlie your Pruco Life Variable Universal
Life variable life insurance contract.
The past six months were a time of slowing economic growth. U.S. Gross Domestic
Product, which measures the country's total output of goods and services, grew
at an estimated annualized rate of 3.5% for the six months ended June 30,
according to Prudential economists.
Given this environment, stock prices continued to gain, with the Dow Jones
Industrial Average rising 13.2% during the six-month period, while the Standard
& Poor's 500 Composite Stock Price Index climbed 17.7%. But, not all stocks were
equal. Large capitalization growth stocks with dependable earnings were the
market's favorites. Indeed, as reported by Morningstar, the average large
capitalization growth fund returned 20.3%, while the average small
capitalization value fund returned 4.7%. Bonds also provided dependable total
returns of 3.9%, according to the Lehman Brothers Aggregate Index.
How Did Our Portfolios Perform?
You will be pleased to learn that the Portfolios of The Prudential Series Fund,
Inc. delivered returns similar to those of the broader markets and consistent
with the strategies around which they were designed. Nearly all of our U.S.
stock portfolios continued to post double-digit returns, while our bond
portfolios finished with very healthy results.
Consistent with the market, our large capitalization growth portfolio -
Prudential Jennison - posted unusually high returns of over 20%. On the other
hand, our value-oriented Equity Portfolio, which returned over 12% in the
six-month period, lagged the growth-oriented fund average. Once again, the
market reminded us of the critical nature of diversification.
Six of our portfolios finished the reporting period ahead of the average
variable life and variable annuity contracts in their respective categories.
These were the Money Market, Diversified Bond, High Yield Bond, Stock Index,
Prudential Jennison, and Global Portfolios.
2
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Fifteen Years and Growing.
The Prudential Series Fund is celebrating 15 years of providing you with the
opportunity to maximize the results of your variable life or variable annuity
contract cash values, subject to the risks associated with these kinds of
investments. As of June 30, 1998, we had assets of $28 billion under management.
We have worked through the years to meet the changing needs of our clients by
increasing from five to 15 the number of investment choices that we believe
offer Contract Owners diversification and the benefits of professional
management. (Not all investment options are available in all contracts.)
Staying the Course for the Long Term.
As we reached the midpoint of another year, the financial news was decidedly
upbeat. However, there were times during the reporting period when price
volatility affected the stock and bond markets. These market swings illustrate
the importance of Contract Owners "staying the course" for the long term.
Of course, this does not mean you should ignore change. Indeed, with record
valuations in the U.S. stock market at a time when U.S. corporate earnings are
slowing, now may be a good time to review your asset allocation. While stocks
continue to be the investment of choice for many seeking long-term wealth
accumulation, you may wish to consider diversifying a portion of your holdings
to help lessen the effects of market uncertainty. Your Prudential professional
would be happy to assist you in reviewing and structuring a program to meet your
needs.
All of us at Prudential thank you for your business and look forward to helping
you plan for your future financial security.
/s/ Jonathan M. Greene /s/ Mendel A. Melzer
Jonathan M. Greene Mendel A. Melzer, CFA
President Chairman
The Prudential Series Fund, Inc. The Prudential Series Fund, Inc.
July 24, 1998
[PHOTO]
Mendel A. Melzer, CFA
Chairman
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Important Note
The rates of return quoted on the following pages reflect the deduction of
investment management fees and investment-related expenses, but not product
charges. They reflect the reinvestment of dividend and capital gains
distributions. They are not an estimate or a guarantee of future performance.
Contract unit values increase or decrease based on the performance of the
Portfolio and, when redeemed, may be worth more or less than their original
cost. Changes in contract values depend not only on the investment performance
of the Portfolio but also on the insurance and administrative charges,
applicable sales charges, and the mortality and expense risk charge applicable
under the contract. These contract charges effectively reduce the dollar amount
of any net gains and increase the dollar amount of any net losses.
Your Prudential Representative/Pruco Securities Registered Representative can
provide you with actual rates of return for your type of variable life insurance
or annuity contract and show you a personalized illustration of how insurance
charges affect the returns you experience.
3
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1998 Market Review
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How the Markets Compared(1)
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Average Return Over
Return Over Past 20 Years
Past 12 Months (Annualized)
-------------- ------------
Money Market 5.0% 7.7%
Bonds 11.3% 10.0%
Foreign Stocks 17.5% 15.4%
U.S. Stocks 30.2% 17.4%
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This chart compares the 12-month return as of 6/30/98 for various categories of
investments with the average annual total return over 20 years for the same
investment. As you can see, stock and bond market returns can vary considerably
from year to year. Unlike stocks, bonds generally offer a fixed rate of return
and principal if held to maturity. An investment's past performance should never
be used to predict future results. There are different risks associated with
each investment sector, which should be carefully considered before investing.
(1) Source: Lipper Analytical Services, Inc. For purposes of comparison only.
U.S. money markets as measured by Lipper Money Market Average. Bonds as
measured by the Lehman Brothers Gov't. Corp. Index. Foreign stocks as
measured by the Morgan Stanley Capital International World Index. U.S.
stocks as measured by the S&P 500 Index.
The U.S. Market Only Pauses for Breath.
It was a "flight to quality," but what a flight! The flow of money into the
stock market continued to be strong, bolstered by the record $29 billion influx
from foreign investors in the first quarter. U.S. stocks rose 17.7% year-to-date
as measured by the Standard & Poor's 500 Index (S&P 500), an unmanaged index
considered to be generally representative of the U.S. stock market. It was a
blistering pace.
The economic slowdown in Asia, as well as the release of some disappointing
earnings announcements, gave investors pause from mid-March to mid-June, when
the bull market resumed.
In general, investors preferred growth stocks of large, well-established
companies during the reporting period. Small-company stocks trailed
large-company stocks, while growth stocks dramatically outperformed value
stocks. The differences were substantial.
The market rise has been very focused. Today, the 20 largest growth stocks
represent nearly 30% of the S&P 500, close to the market concentration peak in
1974. The average P/E of these 20 stocks is 36.4, compared to a P/E of 21.3 on
the other 480 stocks in the S&P 500.
Consumer Cyclicals Led.
The best-performing sector in the S&P 500 was consumer cyclicals. These are
companies whose sales to consumers increase when the economy grows. This sector
was led by apparel retailers (up 56%), automobile companies (up 51%) and general
retailers (up 51%) such as Wal-Mart and Kmart. Consumer confidence was high,
interest rates were low and home building got a quick start because of a mild
winter. Home builders (up 31%) also had good returns, although not quite at the
pace of the market leader.
Technology Stocks Were Investors' Favorites.
Manufacturers of communications equipment were the single best-performing group
(up 62%) in the S&P 500. Lucent Technologies' stock more than doubled in price
during the half-year. Computer software companies, such as Microsoft, Computer
Associates, Oracle and Unisys (whose stock also more than doubled in the
period), had the fifth highest average return -- 45%.
4
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Consumer Cyclicals Led
the Market
YTD 1998
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Consumer Cyclicals 35.2%
Technology 28.2%
Consumer Growth 17.3%
Finance 16.5%
Industrials 12.0%
Utilities 10.9%
Energy 4.5%
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Source: Prudential Investments.
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Large Growth Stocks
Outperformed Small
Value Stocks.
YTD 1998
--------
Large Growth 20.3%
Small Value 4.7%
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Source: Morningstar, Inc. For purposes of comparison only.
Consumer Growth Was Strong.
The consumer growth and staples category includes companies whose sales to
consumers tend to grow at a relatively consistent pace. It was led by restaurant
companies (up 37%), such as McDonald's and TRICON Global Restaurants. Cosmetics
and health-care companies also had a good half-year, but tobacco companies were
the second worst-performing group, losing ground over the period.
Industrials Lagged.
Industrials suffered, because the Asian economic slowdown reduced the demand for
commodities. Railroads (down 11%), specialty chemicals, metals (particularly
aluminum and nonferrous metals) and gold all fell in price.
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The Dow in the Past Twelve Months
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Jun '97 Jul '97 Aug '97 Sep '97 Oct '97 Nov '97 Dec '97
- ------- ------- ------- ------- ------- ------- -------
7672.79 8,222.61 7,622.42 7,945.26 7,442.08 7,823.13 7,908.25
7722.33 8,194.04 7,879.78 8,015.5 7,674.4 8,013.11 7,965.04
7795.38 8,198.45 7,894.64 8,027.53 7,689.13 8,018.83 7,978.99
7895.81 8,187.54 7,867.24 8,038.58 7,692.57 8,032.01 7,906.25
7858.49 8,259.31 7,822.41 8,100.22 7,683.24 8,050.16 7,902.27
7962.31 8,188 7,835.18 8,178.31 7,581.32 8,149.13 7,802.62
7842.43 8,031.22 7,851.91 8,095.06 7,552.59 8,110.84 7,580.42
7886.76 8,062.11 7,719.28 8,061.42 7,558.73 8,049.66 7,647.18
7921.82 7,960.84 7,660.98 8,045.21 7,401.32 7,978.79 7,732.13
7922.98 7,928.32 7,742.97 8,072.22 7,487.76 7,848.99 7,784.69
7975.71 7,942.03 7,721.14 8,096.29 7,572.48 7,838.3 7,691.77
8038.88 7,694.66 7,895.92 8,057.98 7,698.22 7,922.59 7,753.55
8020.77 7,803.36 7,886.44 7,938.88 7,650.82 7,976.31 7,873.12
7890.46 7,918.1 7,922.72 7,847.03 7,724.74 7,957.41 7,794.4
7906.72 8,021.23 7,917.27 7,921.44 7,826.61 7,846.5 7,730.88
8061.65 7,893.95 7,996.83 8,060.44 7,881.07 7,756.29 7,700.74
8088.36 7,887.91 7,970.06 8,034.65 7,767.92 7,819.31 7,712.94
8116.93 7,859.57 7,906.71 7,847.77 7,808.95 7,691.77 7,815.08
8113.44 7,782.22 7,848.01 7,715.41 7,794.78 7,660.13 7,915.47
8121.11 7,787.33 7,922.18 7,161.15 7,679.31 7,973.02
8174.53 7,694.43 7,991.43 7,498.32 7,792.41
8254.89 7,945.26 7,506.67 7,915.97
7,381.67
Jan '98 Feb '98 Mar '98 Apr '98 May '98 Jun '98
- ------- ------- ------- ------- ------- -------
7906.5 8,545.72 8,799.81 9,063.37 8,970.2 8,952.02
8107.78 8,550.45 8,868.32 9,147.07 8,899.95
8160.35 8,584.83 8,986.64 9,192.66 8,922.37
8129.71 8,539.24 8,983.41 9,147.57 8,891.24
8117.25 8,444.33 9,033.23 9,054.65 8,803.8
8189.49 8,569.39 8,956.5 8,976.68 8,870.56
8180.52 8,567.14 8,891.48 9,055.15 9,037.71
8295.61 8,643.12 8,994.86 9,091.52 9,069.6
8314.55 8,675.75 9,012.3 9,161.77 9,049.92
8369.6 8,659.56 9,110.2 9,211.84 8,971.7
8370.1 8,602.52 9,162.27 9,172.23 8,811.77
8398.5 8,718.85 9,076.57 9,096 8,834.94
8451.06 8,749.99 9,167.5 9,050.91 8,627.93
8375.58 8,775.4 9,141.84 9,054.65 8,665.29
8413.94 8,803.05 9,184.94 9,171.48 8,829.46
8410.2 8,906.43 9,176.72 9,132.37 8,813.01
8370.1 8,816.25 9,143.33 9,114.44 8,712.87
8457.78 8,904.44 9,064.62 8,963.73 8,711.13
8490.67 8,872.8 8,917.64 8,936.57 8,828.46
8,846.89 8,898.96 8,923.87
8,796.08 8,951.52 8,935.58
8,782.12 8,944.54
8,997.36
July 16, 1997 The Dow passes 8,000-point mark.
Oct. 28, 1997 The Dow surged 337 points, its largest point gain ever
April 16, 1998 The Dow tops the 9,000-point mark.
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Daily close of the Dow Jones Industrial Average for the past twelve months.
Energy Demand Lagged.
The economic slowdown in Asia and the mild North American winter, together with
supplies that had been increasing for some time, combined to keep energy firms
at the bottom of the list. Oil and gas drillers was the worst-performing
industry group in the S&P 500.
5
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1998 Market Review
continued
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30-Year U.S. Treasury Yields
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Jan '98 Mar '98 May '98 Jun '98
------- ------- ------- -------
5.84 6.02 5.93 5.63
5.73 5.89 5.98
5.81 5.88 5.97
5.97 5.96 5.9
5.8 5.79 5.8
5.92 5.88 5.79
5.85 5.88 5.66
5.87 5.95 5.67
5.92
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Weekly closing yields for the past six months. Source: Bloomberg, as of 6/26/98.
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High Yield Bonds Top
YTD 1998
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High Yield Bonds 4.5%
Government Bonds 4.2%
Corporate Bonds 4.2%
Aggregate Index 3.9%
Mortgage Bonds 3.4%
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Source: Lehman Brothers, as of 6/30/98.
U.S. Bonds: The Leader of the Pack.
Contrasting economic conditions between the U.S. and Asian countries enhanced
the appeal of U.S. bonds. As a result, the high yield, corporate and government
sectors of the domestic debt market provided the highest returns in the taxable
fixed-income universe over the past six months.
In the U.S., a nearly ideal economic climate prevailed, pushing bond prices
higher and yields lower. Inflation, the archenemy of bondholders, remained
subdued. Economic growth began slowing from the robust 5.4% annualized pace of
the first quarter, indicating that inflationary pressures will likely remain in
check.
Across the Pacific, however, the Japanese economy fell into recession. Skittish
overseas investors shifted money from emerging markets and Asia into U.S.
government securities for their relative safety, causing further declines in
interest rates.
Bonds returned 3.9% for the six-month period ended June 30, 1998, as measured by
the Lehman Brothers Aggregate Index. High yield bonds returned 4.5% for the same
period; U.S. government securities, 4.2%; and investment-grade corporate bonds,
4.2%.
The top performance by corporate high yield (or junk) bonds masked the fact that
the sector fared better in the first quarter than the second quarter. Initially,
strong investor demand easily absorbed the flood of new high-yielding bonds. But
as corporate default rates edged higher and earnings growth slowed, investors
demanded a larger reward for purchasing below investment-grade debt. This
attitude caused the difference between yields on high yield bonds and comparable
Treasuries to increase during the spring.
Investment-grade corporate bonds followed a similar path. Favorable domestic
economic conditions buoyed the market earlier in the year, but continued heavy
new issuance and growing concern about corporate earnings crimped the rally in
late spring.
Among U.S. government securities, longer-term bonds gained most. The yield on
the 30-year Treasury bond fell in June to its lowest level since regular sales
of the securities began in 1977. Tax-exempt municipal bond issuance soared as
state and local governments rushed to take advantage of rock-bottom interest
rates.
6
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The World: Europe Takes Off.
Europe, where stock markets took off a year ago, hit the afterburners in 1998,
returning nearly 27% during the first half of the year in U.S. dollars, as
measured by the Morgan Stanley Capital International (MSCI) Europe Index. This
was more than the MSCI Europe Index's return for all of 1997. The combination of
low interest rates, economic acceleration, the potential productivity gains from
monetary union and increasing participation in stock ownership pushed share
prices up sharply.
France and Germany, the large central economies with the greatest inertia, have
built up steam, turning in returns of 39% and 37%, respectively, for the first
half of 1998. They outpaced the 33% return of Italy, but Spain's stock market
returns continued to lead the larger economies, with a 45% performance. Only
Norway, among the European countries, didn't participate in the bull market,
declining 4% during the past six-months.
Asian and Emerging Markets Faltered.
The Asian financial crisis showed no signs of recovery during the second
quarter. As economic activity slowed, governments wrestled with the structural
changes necessary to restore confidence. Japan, which has the economic heft to
initiate a significant positive change in the region, failed to take any
effective action. Instead, its own economy began to shrink rapidly; its stock
market declined 3% in U.S. dollars through the second quarter. Singapore and
Hong Kong saw greater market erosion, losing 34% and 26%, respectively, during
the same period.
Stock markets at the epicenter of the Asian crisis reflected investors' complete
loss of confidence: Thailand's market fell 56%, Malaysia's 59% and Indonesia's
37%, for the year-to-date period ended June 30, 1998.
The aversion to emerging markets also spread beyond Asia. Taiwan's much sounder
economy had a stock market decline of 24%. Even Latin American countries were
affected, with Mexico down 14%, Brazil down 15% and Argentina down 16%.
Investment capital moved from areas with uncertain economic prospects to what
appeared to be more secure havens as exchange rate adjustments made Latin
America less competitive compared with Asia.
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Foreign Markets
YTD 1998
--------
MSCI Europe Index 26.7%
MSCI World Index 16.9%
MSCI EAFE Index 16.1%
MSCI Japan Index -2.5%
MSCI Pacific Index -5.8%
S&P 500 Index 17.7%
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Source: Lipper Analytical Services, Inc.
The Morgan Stanley Capital International (MSCI) World Index is a weighted,
unmanaged index of the performance of 1,472 securities listed on the stock
exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Investors cannot invest directly in an index.
Morgan Stanley country indexes [Europe, Asia, Far East (EAFE), Pacific and
Japan] are unmanaged indexes that include stocks making up the largest
two-thirds of each country's total stock market capitalization. This chart is
for illustrative purposes only and is not indicative of the past, present or
future performance of any specific investment. Investors cannot invest directly
in stock indexes.
The Standard & Poor's 500 is a weighted, unmanaged index comprised of 500
stocks, which provides a broad indicator of stock price movements.
7
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1998 Investment Advisor's Outlook
Market Outlook: Expect Slower Growth.
o Prudential's economists note that the sharp economic acceleration in the first
quarter of 1998 was due to a buildup of inventories. They expect a sharp
slowdown in economic activity over the second half of the year as inventories
are drawn down, net imports increase and greater unused industrial capacity
slows business investment.
o Inflation has been subdued and should remain so. Although profits have been
declining in many industries, they believe profits will be squeezed further
rather than lead to price increases, because businesses face tremendous
pressure to maintain prices.
o With recent renewed uncertainty in emerging markets and the U.S. manufacturing
sector now feeling the negative impact of the strong dollar and the downturn
in Asia, the Federal Reserve is likely to continue to keep policy on hold for
the next several months. By the fourth quarter of this year, they expect the
slowdown in the U.S. economy will prompt the Federal Reserve to ease monetary
policy.
U.S. Stocks: Prices Remain High.
Profit margins are at record levels, and investors are paying record multiples
of these earnings for stocks. However, corporate earnings growth has slowed and,
in many industries, reversed, while the prices of large-company stocks have
continued to rise. Most investors appear to be buying a growth trend, rather
than foreseeable earnings. For some time we have not expected share price gains
to continue at the rate they have. Investors showed some concern during much of
the second quarter about future earnings. We expect them to react to the slowing
U.S. economy by continuing to focus on companies with more predictable earnings.
We see no reason for the market's focus to broaden before prices peak.
We believe that small-company stocks represent better value. Their earnings
growth has been holding up, while their share prices have not kept pace with the
market leaders. This has resulted in price to earnings ratios that are lower for
small-company stocks than for large companies, a very unusual relationship.
Ordinarily, we would expect investors to discover the greater investment values
that small-company stocks now represent and for small caps to catch up. However,
the greater proportion of new investors in the market and the recent flow of
foreign capital to U.S. markets suggest that many current investors may feel
uncomfortable with any but the most familiar stocks. Moreover, small companies
are more vulnerable to a market downturn. In the current market environment, we
are unable to find a catalyst to unlock the superior value offered by
small-company stocks.
8
<PAGE>
Foreign Stocks: Asian Fallout Continues.
The impact of the Asian economic slowdown is gradually being felt throughout the
world. In the U.S. and Europe, it appears to have kept inflation in check. But
it is also making life more difficult for emerging economies.
Although prices in these markets are getting very cheap, we believe it is still
necessary to be very cautious in any of these stock markets. The Japanese
economy is undergoing a sharp contraction. We don't believe that the
government's current actions (a fiscal stimulus package and moderate tax cuts)
will be sufficient to reverse their economic slide or prevent a further decline
in the yen.
Continental Europe is seeing both an economic and a stock market resurgence.
Although share prices have become high by historical standards, prospects for
earnings growth are excellent and better than anywhere else. We expect current
trends to continue.
U.S. Bonds: Treasuries Still Look Good.
We believe the rally in Treasury securities has not run out of steam. Signs of
slower U.S. economic growth have emerged, most notably in the manufacturing
sector.
Separately, the Treasury Department announced plans to meet the government's
reduced borrowing needs by eliminating sales of its three-year notes and cutting
the frequency of five-year note auctions to quarterly from monthly. Taken
together, the Asian financial crisis, moderating U.S. economic growth and the
dwindling supply of Treasury issues will likely lead to higher bond prices and
lower yields.
We will proceed with caution when purchasing bonds during the remainder of the
year. While junk bonds, municipal securities, investment-grade U.S. corporate
debt, global bonds, emerging market bonds, and mortgage-backed and asset-backed
securities still offer solid value, prudence demands we emphasize larger bond
issues that can be easily bought and sold even if prices turn lower.
Additionally, we will even be more reliant upon thorough market research, which
is key to ensuring the overall credit quality dynamic in the portfolios.
================================================================================
A Reality Check.
Stock prices in general have doubled in the last three and a half years. We're
quite pleased with the unusually high returns that stocks have provided for our
Contract Owners over the past few years and we are certain that you are too.
Those types of returns bring you closer to your goals of financial security
faster than you might have expected.
Since 1927, the U.S. stock market's average return has been 10.7%, as measured
by the S&P 500. Yet in recent years returns have been much higher, as the chart
below shows.
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Returns of the U.S. Stock Market.
Average
Annual
Return
------
Last 70 Years
1927-1997 10.7%
- --------------------------------------------------------------------------------
Source: Ibbotson Associates.
Last Three and a Half Years
1995 37.5%
1996 23.0%
1997 33.4%
1998 (YTD) 17.7%
- --------------------------------------------------------------------------------
Source: Lipper Analytical Services, Inc.
With the highest valuation levels in history at a time when corporate profits
are slowing, we believe it is prudent to remember that recent rates of return
are unlikely to continue.
9
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Prudential Money Market Portfolio
Performance Summary.
Your Portfolio returned 2.66% during the six-month reporting period, which
outperformed the 2.54% reported by the average money market fund as tracked by
Lipper Analytical Services. On June 30, 1998, the Portfolio's seven-day yield
was 5.28%, down from 5.61% on December 31, 1997.
The Portfolio was able to benefit from surges in the demand to borrow funds that
temporarily drove short-term interest rates higher. During those times, we moved
quickly to lock in attractive yields and position the Portfolio advantageously,
given that monetary policy held steady throughout the first half of the year.
An investment in the Money Market Portfolio is neither insured nor guaranteed by
the U.S. government. There is no guarantee that the Portfolio will be able to
maintain a stable share value of $10.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Money Market Portfolio(1) 2.66% 5.49% 5.40% 4.93% 5.73%
- --------------------------------------------------------------------------------
Lipper (VIP) Money Market Avg.(2) 2.54% 5.21% 5.14% 4.68% 5.57%
- --------------------------------------------------------------------------------
Money Market Portfolio inception date: 5/13/83.
================================================================================
7-Day Current Net Yields During the Past 12 Months
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Money Market Portfolio(1) Average Money Market Fund(2)
------------------------- ----------------------------
Jul '97 5.36 4.98
5.36 4.96
5.36 4.95
5.35 4.94
5.34 4.94
5.3 4.96
5.35 4.93
5.35 4.96
5.33 4.94
Sept '97 5.32 4.95
5.33 4.93
5.33 4.94
5.33 4.94
5.33 4.95
5.35 4.92
5.32 4.9
5.32 4.92
5.32 4.93
5.31 4.95
5.32 4.93
5.33 4.95
5.35 4.96
Dec '97 5.37 5
5.37 5
5.42 5.03
5.49 5.06
5.53 5.07
5.7 5.07
5.53 5.03
5.48 5.02
5.44 4.99
5.37 4.99
5.35 4.96
5.33 4.95
5.36 4.94
Mar '98 5.36 4.96
5.32 4.93
5.31 4.92
5.3 4.92
5.32 4.93
5.32 4.92
5.3 4.92
5.29 4.92
5.28 4.9
5.28 4.9
5.26 4.9
5.27 4.92
5.26 4.9
Jun '98 5.25 4.92
5.25 4.91
5.26 4.92
5.26 4.94
5.28 4.91
- --------------------------------------------------------------------------------
Weekly 7-day current net yields of the Money Market Portfolio and the IBC
Taxable General Purpose, First and Second Tier Money Market Fund.
- --------------------------------------------------------------------------------
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) Source: IBC Financial Data, Inc. As of 6/30/98, based on 285 funds in the
IBC Taxable General Purpose, First and Second Tier Money Market Fund.
================================================================================
[GRAPHIC]
FIXED INCOME Balanced High Yield Bond Diversified Stock Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Current income, stability of capital and maintenance of liquidity.
Types of Investments
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of Certificates of Deposit (CDs), Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
Performance Review.
Rates Edged Lower. During the first half of 1998, money market interest rates
generally hovered at lower levels compared with the second half of 1997.
Belief that the U.S. economic expansion is bound to slow has helped keep a lid
on rates this year. For example, the 12-month London Interbank Offered Rate
(LIBOR) averaged 5.80% during the first half of 1998 compared with 6.00% for the
second half of 1997. This trend was reflected in the decline in the Portfolio's
seven-day yield.
10
<PAGE>
Strategy Session.
Shifting Sand. Market sentiment shifted several times over the past six months
as investors tried to gauge how much Asian financial woes would affect U.S.
economic growth. As the new year began, many investors believed the Asian
financial crisis would slow U.S. economic growth enough that the Federal Reserve
would lower the federal funds rate (the rate banks charge each other for
overnight loans) to stimulate the economy. Market sentiment was so strong that
investors initially drove money market yields lower.
As it turned out, the economy sped along at a 5.5% annualized pace in the first
three months of 1998.
Investors, thinking that such a powerful economy might continue to grow rapidly
despite Asian problems, now believed a federal funds increase might be
necessary. This pushed longer-term money market yields higher in late February
and early March.
Fire Sale Prices. The spring, however, brought another change in market
sentiment. Renewed concern that Asian difficulties could hurt the U.S. economy
caused speculation about a federal funds rate increase to fade in the spring.
This realization kept money market yields in a narrow trading range for the most
part, neither moving dramatically higher nor lower.
In addition, the U.S. Treasury continued paying off debt, keeping a lid on
short-term interest rates by lowering the supply of Treasuries. Under these
conditions, the best buying opportunities emerged at the end of the first and
second quarters when concurrent factors briefly pushed up yields so that money
market securities traded at "fire sale" prices. We purchased three-month and
one-year securities that extended the Portfolio's weighted average maturity.
Outlook
PORTFOLIO MANAGER
Manolita Brasil
A Balanced Perspective.
"The U.S. manufacturing sector may have finally begun to experience the
long-awaited slowdown due to the Asian economic crisis. If the U.S. economy
moderates to the extent expected by the Federal Reserve, monetary policy will
likely remain unchanged in coming months. Of course, if more signs of slower
growth emerge, speculation about a possible federal funds rate cut is bound to
grow. We, however, will be careful to position the Portfolio conservatively to
any overblown swings in market sentiment that arise later in the year."
[PHOTO]
PORTFOLIO MANAGER
Manolita Brasil
================================================================================
Portfolio Composition
as of 6/30/98
-------------
U.S. Commercial Paper 45.7%
Floating/Var. Rate 29.7%
Foreign Bank Obligations 16.9%
Yankee Comm. Paper 6.2%
U.S. Bank Obligations 0.9%
Loan Participations 0.5%
Other 0.1%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
A Word About Quality.
As of June 30, 1998, all of the Portfolio's investments were rated in the
highest category by at least two major, independent rating agencies or, if
unrated, were deemed to be of equivalent quality by our credit research staff.
Investments deemed to be of equivalent quality that were not rated are reported
to the Board of Directors.
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
11
<PAGE>
Prudential Diversified Bond Portfolio
Performance Summary.
Investors fleeing deteriorating economic conditions in Asia purchased U.S.
Treasuries, which are considered to be among the world's safest investments. We
increased your Portfolio's exposure to Treasuries and cut back on long-term
bonds of domestic companies and emerging market governments and corporations. As
a result, the Portfolio's six-month return of 4.44% was greater than the 4.15%
gain of the Lipper (VIP) Corporate Debt Average.
Besides the larger allocation to Treasuries, the surge in mergers and
acquisitions in the U.S. also boosted Portfolio returns. Several of our bonds
rallied after the announcement of key acquisitions in the cable television and
technology sectors.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Diversified Bond Portfolio(1) 4.44% 8.91% 8.43% 7.27% 9.18%
- --------------------------------------------------------------------------------
Lipper (VIP) Corp. BBB Avg(2) 4.15% 11.14% 8.25% 7.13% 8.96%
- --------------------------------------------------------------------------------
Lehman Aggregate Index(3) 3.93% 10.54% 7.88% 6.88% 9.07%
- --------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$24,056 Diversified $23,650 Lipper (VIP) $23,820 Lehman
Bond Portfolio(1) Corp. BBB Avg.(2) Aggregate Index(3)
----------------- ----------------- ------------------
88 10,000 10,000 10,000
10,294.9 10,302.2 10,276.8
89 11,217.7 11,193.6 11,221.8
11,683.2 11,523.2 11,770
90 11,940.2 11,806.7 12,103
12,655.5 12,254 12,824.6
91 13,224.1 12,914.6 13,397.9
14,735.9 14,332.9 14,876.9
92 15,134.8 14,761 15,279.3
15,794.7 15,421.8 15,978
93 16,937.2 16,674 17,079.8
17,395.1 17,245.9 17,535.8
94 16,732 16,389.6 16,857.5
16,832.8 16,506.2 17,024.3
95 18,866.5 18,556.1 18,972.7
20,322.6 19,849.8 20,169.5
96 20,010.6 19,469.8 19,924.5
21,216.3 20,527.9 20,901.7
97 22,087.8 21,164.5 21,548.3
23,034.2 22,603.6 22,919.7
98 24,056.1 23,650.1 23,819.9
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Corporate BBB Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment returns of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The Lehman Aggregate Index (LAI) is comprised of over 5,000 government and
corporate bonds. The LAI is an unmanaged index and includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LAI may differ substantially
from the securities in the Portfolio. The LAI is not the only index that
may be used to characterize performance of income funds, and other indexes
may portray different comparative performance.
================================================================================
[GRAPHIC]
FIXED INCOME Balanced High Yield Bond Diversified Stock Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
High level of income over the long term while providing reasonable safety of
capital.
Types of Investments
U.S. government securities, mortgage backed bonds, both investment-grade and
high yield ("junk bond") corporate debt, and foreign securities (dollar and
non-dollar denominated).
Investment Style
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
Performance Review.
Spotlight on Asia. Unsettled economic conditions in Asia dominated the
fixed-income markets during the past six months.
The failure of Hong Kong's largest investment bank and a tumbling Japanese yen
were two of the developments that bolstered the appeal of U.S. government
securities. Therefore, increasing the Portfolio's holdings of Treasuries worked
well.
We own debt securities from the cities of Moscow and St. Petersburg in Russia.
Mounting economic problems in Russia pressured the nation's currency, stocks and
bonds. However, the short-term maturities of our Russian assets limited their
price declines.
12
<PAGE>
Strategy Session.
No Quick Fix for Asia. Some investors hoped for an early resolution to the Asian
economic crisis. Confidence was so high that $4 billion of South Korean
government bonds sold in April met with strong investor demand and Asian debt
rallied. We took advantage of this trend to reduce the Portfolio's emerging
markets bond holdings.
Investors eventually realized there would be no quick fix for the Asian crisis.
The Japanese economy is in recession, casting doubt on regional prospects for
recovery anytime soon. In June, the Japanese yen tumbled to an eight-year low
against the U.S. dollar, boosting demand for dollar-denominated assets. Not
surprisingly, Treasuries maturing in 20 years or more gained 6.72% over the past
half-year, as reported by Lehman Brothers. Treasuries climbed to about 21% of
our total investments as of June 30 from 2.0% on December 31, 1997.
Demand Drives Down Yields. Surging demand drove 30-year Treasury bond prices
higher, while the yield fell in June to its lowest level since 1977. With yields
hovering near rock bottom, investment-grade corporate bond issuance soared to
$155.9 billion over the past six months, according to Lehman Brothers. This
flood of debt met with tepid demand in late spring, particularly for longer-term
bonds. Fortunately, we had shifted away from this sector toward short- and
intermediate-term corporate bonds. Our Tele-Communications Inc. bonds rallied
after AT&T announced plans to buy the company, and we sold Digital Equipment
bonds at a profit to Compaq Computer, which acquired Digital.
Outlook
PORTFOLIO MANAGER
Barbara Kenworthy
Caution Is a Virtue.
"We plan to stick with a more cautious approach to investing for the remainder
of the year. We now hold fewer higher-risk assets such as junk bonds and
emerging markets debt. Our shift toward short- and intermediate-term corporate
bonds is yet another example of protecting the Portfolio, since prices of
longer-term bonds would suffer the largest declines if fixed-income markets
turned lower.
"We are keeping a close watch on issuance of junk bonds and investment-grade
corporate bonds, which are on track to break new records in 1998. On the one
hand, this big supply will likely provide great buying opportunities. On the
other hand, the difference between yields on Treasuries and comparable high
yield or junk bonds and investment-grade corporate bonds could increase
significantly if investors balk at purchasing new bonds in the second half of
the year. Treasuries could probably perform better than both junk bonds and
investment-grade corporates in a bond market rally."
[PHOTO]
PORTFOLIO MANAGER
Barbara Kenworthy
================================================================================
Portfolio Composition
as of 6/30/98
-------------
U.S. Corporates 63.9%
U.S. Treasuries 20.6%
Foreign (U.S. $) 7.5%
Asset-backed 1.4%
Mortgages 1.0%
U.S. Government Agencies 0.8%
Cash 4.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Credit Quality
as of 6/30/98
-------------
U.S. Government 21.7%
AAA 2.5%
AA 3.1%
A 16.9%
BBB 37.8%
BB 13.0%
B 1.5%
Cash 3.5%
Average Credit Quality A
Duration 5.7 years
Average Maturity 10.8 years
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
13
<PAGE>
Prudential Conservative Balanced Portfolio
Performance Summary.
Your Portfolio returned 8.02% for the first half of 1998, between the 17.72%
return on U.S. stocks and the 4.17% returned by Gov't./Corp. bonds.
Your Portfolio -- which invests in a conservative mix of stocks, bonds and money
market securities -- returned less than the average Flexible (VIP) Portfolio
tracked by Lipper Analytical Services, because the Portfolio's conservative
mandate requires a smaller proportion of equities in the asset allocation.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Conservative Balanced Portfolio(1) 8.02% 13.69% 13.80% 10.77% 11.14%
- --------------------------------------------------------------------------------
Lipper (VIP) Balanced Avg.(2) 9.61% 18.20% 17.15% 13.38% 12.14%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 4.17% 11.28% 7.86% 6.88% 9.10%
- --------------------------------------------------------------------------------
Conservative Balanced Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
$28,753 Conservative $31,502 Lipper (VIP) $23,889 Lehman Gov't./
Balanced Portfolio(1) Balanced Avg.(2) Corp. Bond Index(4) $54,787 S&P 500(3)
--------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
10,000 10,000 10,000 10,000
88 10,193.2 10,298.8 10,284.9 10,343
11,065.7 11,406.2 11,234.1 12,051.9
89 11,924.6 12,116.1 11,748.9 13,614.7
12,325.3 12,337 12,032.7 14,033.9
90 12,552.9 12,240.3 12,722.1 13,191.5
13,577.8 13,268.1 13,262.5 15,068.4
91 14,947.2 14,847.3 14,773.7 17,201.7
15,081.4 15,001.6 15,141.4 17,086.1
92 15,986.6 16,055.8 15,893.8 18,510.4
17,237.6 17,115.1 17,132.1 19,410.8
93 17,936.6 17,948.9 17,647.1 20,372
17,518.5 17,248.6 16,881.9 19,682.7
94 17,763.2 17,523.6 17,027.9 20,639.5
19,510.5 19,865.7 19,036.4 24,805.8
95 20,831.2 21,630.1 20,304.5 28,386.3
21,881.5 22,527.8 19,922.7 31,250.3
96 23,461.3 24,283.2 20,893.8 34,899.6
25,290.2 26,660.3 21,467.3 42,087.9
97 26,617.8 28,772.6 22,932.6 46,538.9
98 28,752.6 31,501.8 23,889.2 54,786.5
</TABLE>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Balanced Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
================================================================================
[GRAPHIC]
Fixed Income BALANCED High Yield Bond Diversified Stock Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Favorable total return consistent with a more conservatively managed diversified
portfolio.
Types of Investments
Money market instruments, bonds and common stocks of both established and
smaller companies.
Investment Style
The Portfolio management team holds a baseline allocation of 35% stocks, 35%
bonds and 30% money market instruments.
Performance Review.
Defensive Positioning. We began the year with part of our stock allocation in
growth stocks, which moved up sharply through the second quarter, contributing
to a strong overall stock contribution. However, we reduced our exposure to
these growth stocks with the aim of improving the stability of our return over
the long run. Our gains slowed with the overall slowing of the market. Our value
stocks, which included some mid-size and smaller firms, were generally out of
favor through the half-year. The inexpensive industrials that were one focus of
our value holdings remained unpopular, although the consumer stocks that were
another focus did provide a strong return.
The Portfolio's bond holdings outpaced the broader bond market, aided by good
credit selection and a rebound in the value of depressed bonds in emerging
markets.
14
<PAGE>
Strategy Session.
We Increased Stocks. Although we viewed the equity market as somewhat
overvalued, we believed our stock selection sufficiently conservative that we
allowed our equity allocation to hover near, or slightly above, our normal
level. Our stock holdings are currently close to 40% of our assets.
Aided by a sizable exposure to outperforming growth stocks, the Portfolio's
stock holdings performed better than the S&P 500. In the second quarter, we
invested a sizable portion of the Portfolio's stock holdings into a portfolio
designed to mimic the performance and risk characteristics of the S&P 500 Index.
We expect that this change should bring greater stability to overall Portfolio
performance.
The remaining portion is invested in stocks we believe to be less expensive than
the average stock in relation to their potential earnings. Historically, such
value stocks have had less room to decline in falling stock markets.
We began the period with a focus on corporate and foreign bonds, which enhanced
the return of our bond portfolio early in the period. We had substantially
reduced our holdings when the market turned against them in June. Looking
forward, our bond holdings modestly overrepresent corporate bonds.
Outlook
PORTFOLIO MANAGER
Mark Stumpp
Why Employ a Passively Managed Core Equity Portfolio?
"We believe that investors expect a balanced fund to provide a broad exposure to
investments in several asset classes. With that in mind, we have invested about
one-half of our stock allocation in a core holding that is designed to closely
track the performance of the S&P 500. In our opinion, this should increase the
diversification of the overall equity portfolio and offer an opportunity to
reduce the overall volatility of Portfolio return. By combining a broadly
diversified core holding with an actively managed portfolio, investors should
expect to participate in the overall stock market, and yet will retain the
ability to outperform through active management."
PORTFOLIO MANAGERS
[PHOTO]
Mark Stumpp
[PHOTO]
Warren E. Spitz
[PHOTO]
Tony Rodriguez
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Bonds 57.4%
Stocks 36.3%
Money Market 6.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Sectors - Stocks
as of 6/30/98
-------------
Drugs & Medical Supplies 3.2%
Telecommunications 2.7%
Banks and Savings & Loans 2.5%
Oil & Gas 2.2%
Retail 2.2%
Top Sectors - Bonds
as of 6/30/98
-------------
Financial 15.6%
U.S. Treasuries 10.4%
Banks and Savings & Loans 4.7%
Airlines 3.6%
Retail 3.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
15
<PAGE>
Prudential Flexible Managed Portfolio
Performance Summary.
The stock market had a strong, although uncertain, half-year. Your Portfolio --
which invests in a mix of stocks, bonds and money market securities -- returned
9.58% for the first half of 1998, between the 17.72% return on U.S. stocks and
the 4.17% returned by Gov't./Corp. bonds. Its returns were about the average of
Flexible (VIP) Portfolios tracked by Lipper Analytical Services.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Flexible Managed Portfolio(1) 9.58% 17.38% 17.58% 13.38% 13.28%
- --------------------------------------------------------------------------------
Lipper (VIP) Flexible Avg.(2) 9.73% 18.12% 17.81% 13.91% 13.26%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 4.17% 11.28% 7.86% 6.88% 9.10%
- --------------------------------------------------------------------------------
Flexible Managed Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
$34,795 Flexible $34,912 Lipper (VIP) $23,889 Lehman Gov't./
Managed Portfolio(1) Flexible Avg.(2) Corp. Bond Index(4) $54,787 S&P 500(3)
-------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
10,000 10,000 10,000 10,000
88 10,178.8 10,204.5 10,284.9 10,343
11,424.5 11,313.5 11,234.1 12,051.9
89 12,394.6 12,263.6 11,748.9 13,614.7
12,639.8 12,617.6 12,032.7 14,033.9
90 12,631.6 12,473.4 12,722.1 13,191.5
13,730.3 13,771.5 13,262.5 15,068.4
91 15,843.7 15,660.4 14,773.7 17,201.7
15,501.6 15,531.7 15,141.4 17,086.1
92 17,049.5 16,768.2 15,893.8 18,510.4
18,569 17,856.8 17,132.1 19,410.8
93 19,705.7 18,901 17,647.1 20,372
18,631.3 17,990.2 16,881.9 19,682.7
94 19,082.1 18,481.8 17,027.9 20,639.5
21,402.6 20,956.4 19,036.4 24,805.8
95 23,591.8 23,036.5 20,304.5 28,386.3
24,896.5 24,378 19,922.7 31,250.3
96 26,916.8 26,420.5 20,893.8 34,899.6
29,643.3 29,228 21,467.3 42,087.9
97 31,752.1 31,546.3 22,932.6 46,538.9
98 34,795.1 34,912.2 23,889.2 54,786.5
</TABLE>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Flexible Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
================================================================================
[GRAPHIC]
Fixed Income BALANCED High Yield Bond Diversified Stock Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
High total return consistent with a more aggressively managed diversified
portfolio.
Types of Investments
Money market instruments, bonds and common stocks of both established and
smaller companies.
Investment Style
The Portfolio management team holds a baseline allocation of 60% stocks and 40%
bonds.
Performance Review.
Not Joining the Chase. Our bond holdings and our core stock holdings performed
well over the half-year. Aided by an exposure to growth stocks in the first
quarter, the Portfolio's stock holdings performed better than the S&P 500.
However, the contribution of our stocks was constrained by the generally weak
performance of any but large-company growth stocks and by our holdings of
industrial companies. The return of the overall stock market was concentrated in
a few very large companies. As investors focused on these stocks, their prices
rose to unusual levels in comparison with their earnings.
Throughout the six months, we had a substantial portion of our stock allocation
invested in a price-sensitive manner that avoided such companies.
16
<PAGE>
Strategy Session.
Seeking Greater Stability. In the second quarter, we invested a sizable portion
of the Portfolio's stock holdings into a portfolio designed to mimic the
performance and risk characteristics of the S&P 500 Index. We expect that this
change should bring greater stability to overall Portfolio performance.
The remaining portion is invested in stocks we believe to be less expensive than
the average stock in relation to their potential earnings. Historically, such
value stocks have had less room to decline in falling stock markets.
Although we have maintained a slight underweighting in stocks, we have been
buying on market dips and selling into strength. We remain concerned about the
prospects for U.S. corporate profits as the Southeast Asian financial crisis
begins to hit export-oriented business. Stock analysts have significantly
reduced estimates for 1998 corporate earnings and, if current trends persist,
corporations will end the year with earnings only slightly ahead of last year's
levels.
We began the period with a focus on corporate and foreign bonds, which enhanced
the return of our bond portfolio early in the period. We had substantially
reduced our holdings when the market turned against them in June. Looking
forward, our bond holdings modestly overrepresent corporate bonds.
Outlook
PORTFOLIO MANAGER
Mark Stumpp
Why Index?
"We believe that investors turn to a balanced fund primarily for consistency of
returns. With that in mind, we have invested part of our stock allocation in a
core holding that is designed to mimic the performance of the S&P 500. Although
growth stocks have had a strong half-year, their performance has been
concentrated in the gains of a few market leaders. Should the earnings of these
companies stumble, a growth portfolio would be vulnerable. We expect the S&P 500
as a whole to offer more consistent growth in the long run. We believe that
taking that as a target for our core holdings is a conservative strategy well
suited to balanced fund investors."
PORTFOLIO MANAGERS
[PHOTO]
Mark Stumpp
[PHOTO]
Warren E. Spitz
[PHOTO]
Tony Rodriguez
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Stocks 51.8%
Bonds 42.3%
Money Market 5.9%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Sectors - Stocks
as of 6/30/98
-------------
Retail 3.5%
Financial Services 3.4%
Telecommunications 3.0%
Oil & Gas 2.9%
Drugs & Medical Supplies 2.9%
Top Sectors - Bonds
as of 6/30/98
-------------
U.S. Gov't 7.9%
Financial 4.7%
Investment Banking 3.9%
Banks and Savings & Loans 3.8%
Airlines 2.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
17
<PAGE>
Prudential High Yield Bond Portfolio
Performance Summary.
Issuance of high yield bonds (also known as junk bonds) surged over the past six
months as corporations rushed to take advantage of lower borrowing costs. This
heavy supply met with tepid demand in the spring, causing junk bonds to cheapen
relative to comparable U.S. Treasuries.
However, your Portfolio's semiannual total return of 5.20% beat the 4.58% gain
on the average high yield fund tracked by Lipper Analytical Services, partly
because of our investment in cable television bonds, one of the best performing
sectors of the high yield market. We also booked profits on some of our health
care and lodging bonds, which were retired early by several companies within
those industries.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
High Yield Bond Portfolio(1) 5.20% 13.06% 12.69% 10.31% 10.35%
- --------------------------------------------------------------------------------
Lipper (VIP) High Current
Yield Avg.(2) 4.58% 11.55% 12.75% 10.24% 10.92%
- --------------------------------------------------------------------------------
Lehman High Yield Index(3) 4.50% 11.36% 11.63% 10.40% 11.28%
- --------------------------------------------------------------------------------
High Yield Bond Portfolio inception date: 2/23/87.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$26,771 High Yield $28,337 Lipper (VIP) $29,106 Lehman High
Bond Portfolio(1) High Current Yield Avg.(2) Yield Index(3)
----------------- -------------------------- --------------
88 10,435.5 10,431.1 10,409.9
10,904.6 11,005.2 10,917.1
89 10,221.4 10,615.8 10,496.6
10,338.1 10,784.7 10,758.4
90 9,010.75 9,997.36 9,490.17
11,288.1 12,022 12,299.6
91 12,524.3 13,400.1 13,873
13,868.7 14,762.6 15,308.9
92 14,720.2 15,567.5 16,058.3
16,392.4 17,346.2 17,750.7
93 17,556.2 18,488 18,806.9
17,363.6 18,026.9 18,380.6
94 17,078.5 17,925.3 18,613.3
18,706.7 19,886.3 20,923.5
95 20,078.1 21,273.9 22,182.2
21,038.8 22,262.5 22,949
96 22,364.9 24,094.6 24,700.2
23,678.9 25,502.9 26,137.1
97 25,447.6 27,197.2 27,852.8
98 26,770.7 28,337.3 29,106.2
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) High Current Yield Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The Lehman High Yield Index (LHYI) is comprised of over 700
non-investment-grade bonds. The LHYI is an unmanaged index that includes
the reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LHYI may differ substantially
from the securities in the Portfolio. The LHYI is not the only index that
may be used to characterize performance of income funds, and other indexes
may portray different comparative performance.
================================================================================
[GRAPHIC]
FIXED INCOME Balanced HIGH YIELD BOND Diversified Stock Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
High total return.
Types of Investments
Primarily non-investment-grade bonds. These bonds have speculative
characteristics and are subject to greater credit and market risk than
higher-quality securities.
Investment Style
Concentrates primarily on junk bonds that appear to offer an attractive
combination of high current income and attractive total return.
Performance Review.
Research Is Key. The high yield bond market continues to grow at an explosive
pace, with 1998 on track to surpass last year's record issuance of $111 billion.
As the size and popularity of the high yield bond market increase, we more than
ever rely on in-depth credit research to weed out bonds that will likely run
into trouble in the future.
Thus, our team of research analysts plays an important role in helping your
Portfolio continue to provide solid returns by avoiding future credit quality
problems.
18
<PAGE>
Strategy Session.
High Yield Bonds Led. High yield bonds provided a 4.50% semiannual return that
led all other sectors of the taxable bond market, based on Lehman Brothers
indexes. Still, the second quarter proved rather challenging for the high yield
bond sector.
With long-term interest rates hovering near rock-bottom levels in the U.S.,
corporations hurriedly issued bonds to lock in low borrowing costs. This flood
of below investment-grade debt securities was easily absorbed initially. But as
corporate default rates edged higher and earnings growth slowed, investors began
to demand a greater reward in the spring for taking a chance on high yield
bonds. As a result, the difference between yields on junk bonds and comparable
Treasuries increased.
Your Portfolio performed well, because we maintained a larger-than-average
exposure to the cable television industry, where debt issuance was rather
limited. In addition, news that AT&T plans to buy Tele-Communications Inc.
boosted prices of cable television bonds, because investors expect more mergers
and acquisitions.
Apart from this trend, your Portfolio benefited when some health care and
lodging companies reduced their borrowing costs by replacing older bonds having
higher interest rates with new bonds that carried lower interest rates. We owned
some of the older bonds that were retired early at prices above their maturity
and current market values, allowing us to realize solid profits.
Outlook
PORTFOLIO MANAGER
George W. Edwards, CFA
Slowdown Warrants Cautious Stance.
"The new issue calendar for high yield bonds remains substantial, and we will
keep a close watch for attractive buying opportunities. However, we worry that
the anticipated slowdown in U.S. economic growth could hurt the ability of
companies in the more cyclical industries, such as steel, technology,
commodities, paper and chemicals, to comfortably pay interest and principal on
their bonds. We therefore are maintaining a below average exposure to bonds of
cyclical industries."
[PHOTO]
PORTFOLIO MANAGER
George W. Edwards, CFA
================================================================================
Top Industries
as of 6/30/98
-------------
Telecommunications 16.3%
Retail 6.7%
Paper/Packing 6.2%
Industrial 5.7%
Energy 4.4%
Top Issuers
as of 6/30/98
-------------
Intermedia Communications 1.3%
Paxson Communications 1.2%
New Sassco 1.1%
Adelphia Communications 1.1%
Dade International Inc. 1.0%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Credit Quality
as of 6/30/98
-------------
Baa 1.0%
Ba 5.2%
B 55.8%
Caa 13.1%
Ca 0.8%
Nonrated 14.4%
Equity 9.1%
Cash 0.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
19
<PAGE>
Prudential Stock Index Portfolio
Performance Summary.
Your Portfolio finished the first half of 1998 with a return of 17.48%. The
market began to rise rapidly the second week in January and continued into
March. Renewed concerns about the impact of the Asian economic slowdown
suspended the climb until the last two weeks in June, after companies that were
going to announce lower second-quarter earnings were likely to have done so.
The U.S. economy rose briskly in the first quarter, but borrowed some of that
growth from the second quarter in the form of higher inventory levels. As we go
to press, there are indications that the economy slowed in the second quarter.
Stock market advances were concentrated among the 50 largest companies.
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in any index, including the S&P 500.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Stock Index Portfolio(1) 17.48% 29.70% 29.76% 22.65% 18.08%
- --------------------------------------------------------------------------------
Lipper (VIP) S&P 500
Index Avg.(2) 17.42% 29.59% 29.69% 22.52% 17.93%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Stock Index Portfolio inception date: 10/19/87.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$52,677 Stock $52,010 Lipper (VIP)
Index Portfolio(1) S&P 500 Index Avg.(2) $54,787 S&P 500(3)
------------------ --------------------- ------------------
10,000 10,000 10,000
88 10,345.2 10,294.8 10,343
12,016.1 11,882.3 12,051.9
89 13,545 13,355.1 13,614.7
13,907 13,645.9 14,033.9
90 13,052.9 12,783.6 13,191.5
14,873 14,678.8 15,068.3
91 16,932.5 16,669.7 17,201.6
16,782.3 16,513.2 17,086.1
92 18,140.5 17,896.5 18,510.4
18,983 18,849.2 19,410.8
93 19,893.6 19,759.8 20,372
19,190.3 19,069.5 19,682.7
94 20,094.2 19,931.4 20,639.6
24,106.5 23,894.8 24,805.8
95 27,542.7 27,267.6 28,386.4
30,282.2 29,965.7 31,250.3
96 33,757.8 33,459.3 34,899.6
40,615.8 40,144.4 42,088
97 44,841.1 44,293 46,539
98 52,677.2 52,010.3 54,786.6
- --------------------------------------------------------------------------------
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) S&P 500 Index Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The S&P 500 is not the only index that may be used to
characterize performance of this Portfolio, and other indexes may portray
different comparative performance.
================================================================================
[GRAPHIC]
Fixed Income Balanced High Yield Bond DIVERSIFIED STOCK Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Seeks results that correspond to the price and yield performance of the S&P 500
Index.(3)
Types of Investments
Primarily stocks in the S&P 500 Index.
Investment Style
This Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. This Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
================================================================================
S&P 500 Index--Total Return by Sector
YTD 1998
--------
Consumer Cyclicals 35.2%
Technology 28.2%
Consumer Growth 17.3%
Finance 16.5%
Industrials 12.0%
Utilities 10.9%
Energy 4.5%
S&P 500 Index 17.7%
- --------------------------------------------------------------------------------
Source: Prudential Investments.
20
<PAGE>
Performance Review.
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Consumer Cyclicals Led the Way. The market was led by the stocks of companies
selling products that consumers buy more of when the economy is growing. These
consumer cyclicals, notably auto manufacturers and retailers, gained 35% in the
half-year. Technology stocks rose 28%, marking the second highest return.
Computer software companies and communications equipment manufacturers performed
particularly well, while the stocks of Dell, Apple, Lucent and Unisys led the
market, more than doubling in six months.
Consumer Growth Stocks Were Impressive. The sectors in the middle of the pack
also showed impressive returns. Consumer growth and staples stocks, such as
restaurants, cosmetics and pharmaceuticals, averaged a 17% return, while
financials turned in a 16% gain. Whereas companies selling to consumers had
strong stock performance, the industrial companies -- particularly railroads,
metals, specialty chemicals and forest products -- had a very weak second
quarter, actually declining in price on average. Nonetheless, the sector
produced a 12% gain for the half-year, because the market rose rapidly when it
was rising. The utilities sector, which also had a negative second quarter,
recorded an 11% gain for the half-year, an excellent return compared with
historical averages.
Energy Stocks Were Weak. The energy sector brought up the rear for the first six
months of 1998, with almost a 5% gain. Weakened demand because of the Asian
economic slowdown and a warm North American winter combined with growing
supplies to provide a very poor environment for energy companies.
Outlook
PORTFOLIO MANAGER
John W. Moschberger
Keep Your Expectations Realistic.
"In economic uncertainty, investors from around the world find relative
stability in the U.S. S&P 500. Although earnings of these companies have been
growing over the past few years, demand for their stocks has driven share prices
up even faster. Our Stock Index Portfolio is one way to own a cross-section of
U.S. industries, but we do not believe that stock prices can outpace earnings
growth indefinitely. Moreover, earnings growth has slowed and earnings even have
declined in some industries. Despite recent history, investors should not expect
double-digit half-years for stock price growth as a matter of course."
[PHOTO]
PORTFOLIO MANAGER
John W. Moschberger
================================================================================
S&P 500 Index Composition
as of 6/30/98
-------------
Financial 17.8%
Consumer Staples 15.0%
Technology 15.0%
Health Care 11.7%
Consumer Cyclicals 9.6%
Capital Goods 8.5%
Energy 7.3%
Communications Services 6.8%
Basic Materials 4.1%
Utilities 3.1%
Transportation 1.1%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
General Electric Capital Corp. 3.2%
Microsoft Corp. 2.9%
Coca-Cola 2.3%
Exxon Corp. 1.9%
Merck & Co. 1.7%
Pfizer, Inc. 1.5%
Wal-Mart Stores 1.5%
Intel Corp. 1.3%
Procter & Gamble Co. 1.3%
Royal Dutch Petroleum 1.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
21
<PAGE>
Prudential Equity Income Portfolio
Performance Summary.
Over the past six months, your Portfolio returned 9.90%. Although high by
historical standards, our return trailed that of the Lipper (VIP) Equity Income
Average, because the stock market advance was concentrated in a small group of
very large company growth stocks.
Investors preferred growth stocks regardless of company size. Consequently, our
value stocks did not keep up. Nor did the stocks of mid-sized companies, which
are also well represented in your Portfolio. Our approach is focused on the long
term, though, and has produced returns that have outpaced the Lipper (VIP)
Equity Income Average over the one-, three-, five- and ten-year periods.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Income Portfolio(1) 9.90% 27.80% 24.91% 19.01% 16.90%
- --------------------------------------------------------------------------------
Lipper (VIP) Equity
Income Avg.(2) 10.64% 22.82% 24.58% 18.91% 15.91%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Equity Income Portfolio inception date: 2/19/88.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$47,655 Equity Income $43,814 Lipper (VIP)
Portfolio(1) Equity Income Avg.(2) $54,787 S&P 500(3)
------------ --------------------- ------------------
10,000 10,000 10,000
88 10,415 10,313.8 10,343
11,924.2 11,888.1 12,051.9
89 12,775.6 12,678 13,614.7
12,694.3 12,610.9 14,033.9
90 12,299.5 11,638.6 13,191.5
13,987.5 13,222.9 15,068.3
91 15,682.4 14,840.4 17,201.6
15,890.2 15,160.2 17,086.1
92 17,272.7 16,416.5 18,510.4
19,965 17,977.6 19,410.8
93 21,121.5 19,009.8 20,372
20,904.5 18,880.1 19,682.7
94 21,425 19,436.6 20,639.6
24,448.9 22,503.6 24,805.8
95 26,075 25,295.2 28,386.4
27,913.2 27,008 31,250.3
96 31,743.2 30,022.6 34,899.6
37,289.1 35,422.2 42,088
97 43,363.7 39,402.1 46,539
98 47,655 43,814.1 54,786.6
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Equity Income Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns and rankings are net of investment fees
and fund expenses but not product charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
================================================================================
[GRAPHIC]
Fixed Income Balanced High Yield Bond DIVERSIFIED STOCK Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Current income and capital appreciation.
Types of Investments
Primarily stocks and convertible securities with prospects for income returns
above those of the S&P 500.(3)
Investment Style
The Portfolio uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures of value.
Performance Review.
Investors Favored Growth Stocks. They preferred not only large-company stocks
but the stocks of the very largest companies during this period. Both trends
worked against us.
Our return also was held back by our focus on industrials -- forest products,
chemicals and metals --- and by our energy and real estate stocks.
Financial Services Helped. Our focus on financial service stocks, including our
large position in Lehman Brothers (up more than 50% in the six months), made a
strong contribution to our return.
Our performance also was supported by our strong focus on economically sensitive
consumer stocks -- autos, retailers and housing-related companies.
22
<PAGE>
Strategy Session.
Cyclicals Are Inexpensive. We believe stocks of companies that do well in an
economic expansion are currently underpriced, because of the extraordinary
length of the U.S. economic expansion and the threatened impact of the Asian
slowdown.
We have focused on two groups of cyclicals: consumer and industrial. Stocks of
companies selling to consumers, such as auto companies, retailers and home
builders, are doing well. Industrials, such as metals, chemicals and forest
products, are languishing. At their current prices, we think both are good
values in a market where value is scarce.
REITs Offer Steady Dividend Growth. Real estate investment trusts (REITs) buy
real estate and issue shares to the public, making it possible to invest in the
burgeoning real estate market by buying a tradable security. Ease of ownership
increases the pool of buyers and should push prices up. We continue to believe
that REITs offer the best prospects for long-term income growth on the market,
well above the average for the S&P 500.
Currently, REITs are selling at very attractive prices compared to other stocks.
We think that investors overreacted to potential legislation that will affect
only a small number of REITs (the paired share trusts) and fear of an overheated
market. We feel that these concerns weren't warranted. We expect our real estate
stocks to rebound and continue their long-term growth.
Outlook
PORTFOLIO MANAGER
Warren E. Spitz
Not a Value Market.
"This is a difficult market for the value style, because most investors appear
to be buying the same few large stocks at any price. For value investors, price
is important. We did not keep up with the market in the first half of 1998,
although our returns are excellent by historical standards. However, since we
haven't been paying top price for our stocks, they have less room to fall when
investors become concerned about profit levels and stock prices peak. The value
style historically has performed well over complete market cycles, and our
Portfolio did exceptionally well in 1997."
[PHOTO]
PORTFOLIO MANAGER
Warren E. Spitz
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Finance 27.4%
Industrial 26.8%
Consumer Cyclicals 19.3%
Energy 9.4%
Consumer Growth & Staples 6.0%
Utilities 5.5%
Technology 1.1%
Cash 4.5%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
Lehman Brothers 5.1%
Dow Chem. Co. 4.1%
Chrysler Corp. 3.3%
AMR Corp. 3.2%
Equity Residential 3.1%
McDermott Int'l. 2.6%
USX US Steel Group 2.6%
ALCOA 2.6%
Hanson PLC ADR 2.5%
Crescent Real Estate 2.5%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
23
<PAGE>
Prudential Equity Portfolio
Performance Summary.
Your Portfolio returned 12.47% in the first half of 1998, trailing the Lipper
(VIP) Growth Fund Average of 16.23% for the period.
Stock market performance for some time now has been concentrated in the stocks
of a few very large growth companies. These stocks have been too expensive for
our value style of investing.
While our large weighting in financial services and HMOs helped performance, our
holdings of industrials, smaller electronics companies and tobacco companies
have hurt it. Our large cash position has also reduced performance as stocks
continued to produce returns well above historic averages.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Portfolio(1) 12.47% 23.78% 23.23% 19.39% 17.04%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.(2) 16.23% 28.06% 25.44% 20.07% 16.76%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Equity Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$47,428 Lipper (VIP)
$48,230 Equity Portfolio(1) Growth Avg.(2) $54,787 S&P 500(3)
--------------------------- -------------- ------------------
88 10,000 10,000 10,000
9,976.59 10,110.1 10,343
89 11,515.7 11,803.7 12,051.9
12,942.6 13,051.3 13,614.7
90 12,997.7 13,559.9 14,033.9
12,268 12,361.7 13,191.5
91 14,793 14,271.6 15,068.4
15,458.9 16,764.6 17,201.7
92 16,480.2 16,219.3 17,086.1
17,650 18,158.6 18,510.4
93 19,886.8 19,168.5 19,410.8
21,509.8 20,678 20,372
94 21,095.2 19,414.1 19,682.7
22,107.4 20,226.6 20,639.5
95 25,773.8 23,835.9 24,805.8
29,024.9 26,845 28,386.3
96 31,147.5 29,539.6 31,250.3
34,400.2 32,457.7 34,899.6
97 38,963 37,230.5 42,087.9
42,882.6 40,994.3 46,538.9
98 48,230.2 47,428.2 54,786.5
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
================================================================================
[GRAPHIC]
Fixed Income Balanced High Yield Bond DIVERSIFIED STOCK Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Capital appreciation.
Types of Investments
Primarily stocks of major, established companies.
Investment Style
This Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
Performance Review.
Cash Constrains Performance. Our substantial cash holdings remained a constraint
on our return as the market continued to rise rapidly. Nonetheless, our cash is
down from its peak because we found some opportunities when investors became
anxious about the impact of the Asian slowdown. Our time-tested investment
discipline tells us not to buy when prices are high.
We Value Consumer Cyclicals. We have a focus on consumer cyclicals. This was the
best-performing sector of the market. We did particularly well with Chrysler,
Kmart and Tandy.
We also had a focus on financial stocks, such as insurance companies and
financial services. On average, these also had good returns.
24
<PAGE>
Strategy Session.
A Hostile Climate for Our Investment Style. Value investing seems to work best
if any of the following conditions exist: The "cheap" stocks are very
inexpensive compared to the average stock; earnings for many businesses are
growing rapidly (earnings growth is abundant, so why pay high prices for it); or
interest rates are high or rising. We've had none of these conditions for some
time now. Investors have picked through the market pretty well and value
differentials are generally small. Profits are slowing -- shrinking, in many
cases, and the Asian economic slowdown has made it difficult for the Federal
Reserve to raise interest rates. As a result, investors have favored the large
companies that generate predictable earnings. So, although our value style is
producing good absolute returns by historical standards, it is trailing the
overall market.
Fear Brings Opportunity. Cyclicals are now among the best value stocks in the
market. We are invested in several cyclical industries: About 7% of our assets
are in paper and forest products companies. Overcapacity in the industry killed
off profits and drove the stocks to historic lows (compared to the overall stock
market). Since then, some capacity has been closed and the industry has begun to
consolidate. We believe the earnings of paper companies have bottomed. The Asian
crisis set back these stocks, because Asia accounts for a third of world paper
demand. However, Asia also accounted for the greatest growth of capacity, which
will slow considerably. The supply/demand situation should improve and we
expect the stocks to rebound.
Our auto companies and retailers, which lost value in the fourth quarter of
1997, recovered in the first half of 1998. Our autos rose 26%, on average, and
retailers were up 23%. Chrysler (up 63%) and Kmart (up 67%) led the way.
Outlook
PORTFOLIO MANAGER
Thomas R. Jackson
Discipline Counts.
"Research shows that it has been wise to stick to an investment style.
Disciplined investors do better in the long run, whatever their style. It is
tough to be a disciplined value investor when other investors are concentrating
almost exclusively on companies that are too expensive for your value style.
However, history demonstrates that economic conditions change and investment
styles come in and out of favor. Meanwhile, as long as the market focuses solely
on this small group of large growth companies, even though a rapidly rising
market may give us a good return, we will lag our more aggressive growth
competitors. Our return relative to other funds shines most when uncertainty
about the economic future leads investors to leave some bargains on the table.
With this in mind, we are sticking to our discipline."
[PHOTO]
PORTFOLIO MANAGER
Thomas R. Jackson
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Finance 24.3%
Industrial 13.4%
Consumer Cyclicals 13.0%
Consumer Growth & Staples 12.6%
Utilities 6.0%
Energy 5.8%
Technology 5.6%
Cash 19.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
Chubb Corp. 2.6%
Elf Aquitaine ADR 2.6%
Morgan Stanley, Dean Witter,
Discover & Co. 2.3%
Loews Corp. 2.3%
Dillard's Inc. 2.0%
SAFECO Corp. 1.9%
Darden Restaurants 1.9%
Kmart Corp. 1.9%
Columbia/HCA Health 1.8%
Wellpoint Health 1.7%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
25
<PAGE>
Prudential
Prudential Jennison Portfolio
Performance Summary.
The stock market notched up another strong half-year of growth. Your Portfolio's
20.75% return was more than four percentage points ahead of the 16.23% gain of
the Lipper (VIP) Growth Average. By owning stocks of companies with predictable
and growing earnings, the Portfolio benefited as investors were willing to pay
more for growth stocks.
Our strong performance was broadly based, with the greatest contributions coming
from pharmaceutical, retail, telecommunications service, financial services and
technology stocks. The primary drag on our return was from companies dependent
on capital spending.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Since
Months Year Years Inception*
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio(1) 20.75% 35.95% 26.52% 29.64%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.(2) 16.23% 28.06% 25.44% 26.81%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 30.97%
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio inception date: 5/1/95.
================================================================================
$10,000 Invested Since Inception*
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
$22,757 Prudential $21,288 Lipper (VIP)
Jennison Portfolio(1) Growth Avg.(2) $23,500 S&P 500(3)
--------------------- -------------- ------------------
10,000 10,000 10,000
95 11,275.7 10,765.9 10,640.2
12,556.3 12,072.6 12,176
96 13,494.4 13,328.3 13,404.5
14,361.8 14,538.9 14,969.8
97 16,801 16,619.6 18,053.2
18,916.1 18,331.8 19,962.4
98 22,757 21,288 23,500.2
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 4/30/95.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
================================================================================
[GRAPHIC]
Fixed Income Balanced High Yield Bond DIVERSIFIED STOCK Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stocks of established companies with above-average growth
prospects.
Investment Style
This Portfolio uses a "growth" investment style to invest in the common stocks
of both mid-size and large companies.
Performance Review.
Drug Stocks Good for Us. Pharmaceutical stocks continue to rise as new product
introductions bode well for earnings growth. Pfizer, Warner-Lambert and Monsanto
(owner of Searle) made the greatest contributions to our return.
Consumers Are Buying. Stocks of retailers generally did very well in the first
half. We benefited particularly from our holdings of Gap stores, Home Depot and
Kohl's (a regional specialty department store company). Increases in reported
same-store sales motivated the gains.
Keeping in Touch. Wireless telecommunications service companies in Europe, as
well as in the U.S., were strong performers in the period. Vodafone, WorldCom
and AirTouch Communications had the greatest impact on our return.
26
<PAGE>
Strategy Session.
Uncertain About Technology. There has been a great deal of uncertainty in the
technology sector: inventory corrections in personal computers, pricing pressure
in memory chips and shortfalls in earnings from companies as well known as
Intel, Motorola and Compaq. We reduced our exposure to these companies during
the period.
On the other hand, companies serving the telecommunications, networking and
software sectors made strong contributions to our performance. Wireless
communications and data networking are driving the telecommunications business.
Our holdings in these service providers performed remarkably during the
six-month period, exceeding our most optimistic short-term expectations.
Consolidation Continues in Financial Services. The financial services industry
continues to consolidate: Brokers buy banks, banks buy investment management
companies, insurers buy other insurers. We have a number of holdings in the
Portfolio which should benefit from this phenomenon.
The largest is Citicorp, soon to become CitiGroup. Since the announcement of its
acquisition by Travelers, the stock hasn't performed particularly well, but we
remain optimistic about the intermediate-term outlook.
Outlook
PORTFOLIO MANAGER
David T. Poiesz
Analysis Is Key to Performance.
"For the past six months, the S&P 500 has gained more than 15% -- that's more
than even the most optimistic market-watchers would have foreseen. While we
don't try to predict the market's direction, our Portfolio has been well
positioned for the move. However, corporate earnings disappointments are
increasing. We expect our Portfolio to distinguish itself with its superior
earnings growth. We expect the bulk of that growth to come from holdings in the
health care, telecommunications, technology and financial services sectors, all
rapidly growing areas of the global economy.
"If the Asian downturn slows the European and North American economies too much,
stock prices will reflect the threat of recession. However, we believe our
Portfolio is less economically sensitive than most, because we look for
companies that can increase their earnings predictably. The key to our
performance will continue to be how well we analyze our companies' earnings
growth potential and the degree to which the market values consistent growth."
[PHOTO]
PORTFOLIO MANAGER
David T. Poiesz
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Technology 32.3%
Financial Services 21.2%
Consumer Growth & Staples 14.8%
Health Care 13.5%
Goods & Services 9.9%
Capital Spending 4.7%
Energy 1.3%
Cash 2.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
WorldCom, Inc. 3.5%
Pfizer, Inc. 2.9%
Citicorp 2.9%
Chase Manhattan Corp. 2.7%
Cisco Systems, Inc. 2.7%
General Electric Co. 2.5%
Microsoft Corp. 2.4%
Morgan Stanley, Dean Witter,
Discover & Co. 2.3%
Schering-Plough Corp. 2.2%
Home Depot, Inc. 2.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
27
<PAGE>
Prudential Global Portfolio
Performance Summary.
Your Portfolio began 1998 very strongly, returning 19.34% over the first six
months and outperforming the Lipper (VIP) Global Average by a significant margin
over that period.
Our second-quarter return was 3.71%. We had a strong focus on the top-performing
Continental European market, and our stock selection within that market improved
our return. We also largely avoided the very poor stock markets in Asia and
emerging markets.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Since
Months Year Years Years Inception*
- --------------------------------------------------------------------------------
Global Portfolio(1) 19.34% 13.49% 17.39% 16.22% 11.56%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.(2) 15.44% 16.47% 18.64% 15.09% 11.97%
- --------------------------------------------------------------------------------
Morgan Stanley World Index(3) 16.85% 17.46% 19.73% 16.16% 12.00%
- --------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
================================================================================
$10,000 Invested Since Inception*
[PLOT POINTS TO COME]
- --------------------------------------------------------------------------------
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 9/30/88.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Global Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The Morgan Stanley Index is a weighted index comprised of approximately
1,500 companies listed on the stock exchanges of the U.S.A., Europe,
Canada, Australia, New Zealand and the Far East. The combined market
capitalization of these companies represents approximately 60% of the
aggregate market value of the stock exchanges in the countries comprising
the World Index. The World Index is an unmanaged index that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the World Index may differ
substantially from the securities in the Portfolio. The World Index is not
the only index that may be used to characterize performance of global
funds, and other indexes may portray different comparative performance.
================================================================================
[GRAPHIC]
Fixed Income Balanced High Yield Bond DIVERSIFIED STOCK Specialized
- --------------------------------------------------------------------------------
Low Risk High Risk
- --------------------------------------------------------------------------------
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
Investment Style
This Portfolio uses a "growth" investment approach, coupled with a
theme-oriented view of the markets, to identify companies that seem best
positioned to take advantage of global changes.
Performance Review.
In the Right Place at the Right Time. Several different kinds of judgment
contributed to our above-average, six-month performance.
We were in the right places, primarily Continental Europe, and not much in Asia
or emerging markets. We were in the right industries. Our software and
telecommunications stocks had strong returns. Our financial companies in Europe
are riding a wave of industry consolidation, productivity improvements and new
revenue streams from managing investments.
We also picked the right stocks. For example, our Japanese holdings, although a
small part of our Portfolio, performed better than the average Japanese stock.
28
<PAGE>
Strategy Session.
Continental Europe Is the Place to Be. In Continental Europe, economic recovery,
together with many beneficial changes associated with European monetary union,
is creating strong earnings growth. We increased our holdings there, adding to
our financial companies.
Financial firms are benefiting from the expanding economy, the low interest
rates that were a prerequisite for monetary union and a restructuring of
European financial services. They are offering popular new products -- such as
bank-managed mutual funds -- and the industry is likely to consolidate.
Communications Are Happening. We're emphasizing communications across the globe,
broadening our reach from the U.S. We are adding to our television exposure in
anticipation of the introduction of digital broadcasting in the U.K. We're also
adding U.S. media companies.
Asia Is Uncertain. We are cautious and continue to underweight Asia, whose
problems are being compounded by political inaction in Japan. We focused our
Japanese holdings more narrowly on export-oriented industrials and hedged almost
all our exposure to changes in the value of the yen.
Outlook
PORTFOLIO MANAGER
Daniel J. Duane
Europe Is the Place to Be.
"Right now, Europe is the epicenter of world economic growth. Even France and
Germany, which have been overregulated sluggish giants, are beginning to stir.
In the U.S. today, we like the software firms that are benefiting from
productivity trends, the health-care firms that are pioneering the restructuring
of the industry in the U.S., and retailers -- primarily because they benefit
from the long economic expansion and are buffered from the impact of events in
Asia.
"We would have liked to see countries in the Pacific follow the U.S. economic
model: openness to investment and credit decision-making, allowing free markets
to decide how capital is allocated. There is movement in that direction, but
Japan is unfortunately resisting the large-scale restructuring that these
changes would require. The decline of Southeast Asian labor costs and currency
values are creating uncertainties for other emerging markets. We will be very
cautious in investing in the Pacific and in emerging markets until the situation
clarifies."
PORTFOLIO MANAGERS
[PHOTO]
Daniel J. Duane
[PHOTO]
Ingrid Holm
[PHOTO]
Michelle Picker
================================================================================
Geographic Allocation
as of 6/30/98
-------------
Continental Europe 41.1%
United States 39.3%
United Kingdom 10.4%
Japan 4.4%
Australia 1.3%
Cash 3.5%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
Vodafone Group 3.0%
Credito Italiano Ord 2.7%
Banco Central
Hispanoamericano 2.6%
Nokia Corp. 2.5%
SAP AG 2.3%
Microsoft Corp. 2.3%
Cisco Systems, Inc. 2.2%
Telefonica De Espana 2.1%
Bank of Ireland 2.0%
Safeway Inc. 2.0%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
29
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments (amortized cost
$864,053,655)............................ $ 864,053,655
Interest receivable........................ 3,194,719
--------------
Total Assets............................. 867,248,374
--------------
LIABILITIES
Bank overdraft............................. 3,337
Payable to investment adviser.............. 794,951
Accrued expenses........................... 127,382
--------------
Total Liabilities........................ 925,670
--------------
NET ASSETS................................... $ 866,322,704
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 866,323
Paid-in capital, in excess of par........ 865,456,381
--------------
Net assets, June 30, 1998.................. $ 866,322,704
--------------
--------------
Net asset value and redemption price per
share, 86,632,271 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 10.00
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Interest................................... $ 20,668,599
---------------
EXPENSES
Investment advisory fee.................... 1,437,134
Shareholders' reports...................... 36,000
Accounting fees............................ 25,000
Custodian expense.......................... 15,000
Audit fees................................. 4,000
Directors' fees............................ 1,000
Legal fees................................. 200
Miscellaneous expenses..................... 1,651
Total Expenses........................... 1,519,985
Less: Custodian fee credit................. (5,689)
---------------
Net Expenses............................. 1,514,296
---------------
NET INVESTMENT INCOME........................ 19,154,303
---------------
NET REALIZED GAIN ON INVESTMENTS............. 850
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 19,155,153
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 19,154,303 $ 35,214,538
Net realized gain on investments....................................................... 850 13,511
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 19,155,153 35,228,049
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (19,154,303) (35,214,538)
Distributions from net realized capital gains.......................................... (850) (13,511)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (19,155,153) (35,228,049)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [33,853,475 and 22,888,771 shares, respectively].................... 338,534,746 228,887,710
Capital stock issued in reinvestment of dividends and distributions [1,915,460 and
3,522,805 shares, respectively]....................................................... 19,154,601 35,228,049
Capital stock repurchased [(14,882,878) and (27,542,174) shares, respectively]......... (148,828,783) (275,421,740)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ 208,860,564 (11,305,981)
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. 208,860,564 (11,305,981)
NET ASSETS:
Beginning of period.................................................................... 657,462,140 668,768,121
------------------ -------------------
End of period.......................................................................... $ 866,322,704 $ 657,462,140
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$902,461,737)............................ $ 925,924,467
Cash....................................... 560
Receivable for capital stock sold.......... 722,800
Interest receivable........................ 13,610,682
Receivable for investments sold............ 5,877,330
--------------
Total Assets............................. 946,135,839
--------------
LIABILITIES
Payable for investments purchased.......... 4,312,541
Payable to investment adviser.............. 899,352
Payable for capital stock repurchased...... 602,000
Accrued expenses........................... 150,836
--------------
Total Liabilities........................ 5,964,729
--------------
NET ASSETS................................... $ 940,171,110
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 833,021
Paid-in capital, in excess of par........ 902,721,012
--------------
903,554,033
Undistributed net investment income........ 14,748,327
Accumulated net realized loss on
investments.............................. (1,593,980)
Net unrealized appreciation on
investments.............................. 23,462,730
--------------
Net assets, June 30, 1998.................. $ 940,171,110
--------------
--------------
Net asset value and redemption price per
share, 83,302,103 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 11.29
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Interest................................... $ 30,725,344
---------------
EXPENSES
Investment advisory fee.................... 1,722,772
Custodian expense.......................... 53,000
Accounting fees............................ 50,000
Shareholders' reports...................... 44,000
Audit fees................................. 5,000
Directors' fees............................ 1,000
Legal fees................................. 500
Miscellaneous expenses..................... 2,977
Total Expenses........................... 1,879,249
Less: custodian fee credit................. (6,212)
---------------
Net Expenses............................. 1,873,037
---------------
NET INVESTMENT INCOME........................ 28,852,307
---------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net realized loss on:
Investments.............................. (663,625)
Futures contracts........................ (1,344,416)
---------------
(2,008,041)
---------------
Net change in unrealized appreciation on:
Investments.............................. 10,816,129
Futures contracts........................ 463,469
---------------
11,279,598
---------------
NET GAIN ON INVESTMENTS...................... 9,271,557
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 38,123,864
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 28,852,307 $ 53,531,495
Net realized gain (loss) on investments................................................ (2,008,041) 9,194,921
Net change in unrealized appreciation (depreciation) on investments.................... 11,279,598 (2,230,780)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 38,123,864 60,495,636
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (14,333,139) (55,359,529)
Distributions from net realized capital gains.......................................... (2,894,769) (9,016,752)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (17,227,908) (64,376,281)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,140,679 and 11,468,488 shares, respectively].................... 135,508,016 127,691,138
Capital stock issued in reinvestment of dividends and distributions [1,553,549 and
5,812,573 shares, respectively]....................................................... 17,227,908 64,376,281
Capital stock repurchased [(4,490,984) and (8,269,292) shares, respectively]........... (50,167,501) (91,696,624)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 102,568,423 100,370,795
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 123,464,379 96,490,150
NET ASSETS:
Beginning of period.................................................................... 816,706,731 720,216,581
------------------ -------------------
End of period (a)...................................................................... $ 940,171,110 $ 816,706,731
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 14,748,327 $ 229,159
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$4,583,320,291).......................... $4,832,107,546
Cash....................................... 3,202,046
Interest and dividends receivable.......... 46,760,098
Receivable for investments sold............ 6,926,846
Receivable for capital stock sold.......... 5,445,317
Due from broker -- variation margin........ 117,141
--------------
Total Assets............................. 4,894,558,994
--------------
LIABILITIES
Payable for investments purchased.......... 13,590,557
Payable to investment adviser.............. 6,704,966
Payable for capital stock repurchased...... 5,396,000
Accrued expenses........................... 638,774
--------------
Total Liabilities........................ 26,330,297
--------------
NET ASSETS................................... $4,868,228,697
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,067,123
Paid-in capital, in excess of par........ 4,341,599,463
--------------
4,344,666,586
Undistributed net investment income........ 51,098,196
Accumulated net realized gains on
investments.............................. 223,156,007
Net unrealized appreciation on
investments.............................. 249,307,908
--------------
Net assets, June 30, 1998.................. $4,868,228,697
--------------
--------------
Net asset value and redemption price per
share, 306,712,286 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 15.87
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $138,143 foreign
withholding tax)......................... $ 11,211,663
Interest................................... 104,700,485
---------------
115,912,148
---------------
EXPENSES
Investment advisory fee.................... 13,180,769
Custodian expense.......................... 276,000
Shareholders' reports...................... 257,000
Accounting fees............................ 84,000
Audit fees................................. 32,000
Directors' fees............................ 1,500
Legal fees................................. 1,000
Miscellaneous expenses..................... 1,727
Total expenses........................... 13,833,996
Less: Custodian fee credit................. (26,737)
---------------
Net Expenses............................. 13,807,259
---------------
NET INVESTMENT INCOME........................ 102,104,889
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 227,916,295
Futures contracts........................ (2,292,852)
---------------
225,623,443
---------------
Net change in unrealized appreciation on:
Investments.............................. 44,588,880
Futures contracts........................ 2,295,878
---------------
46,884,758
---------------
NET GAIN ON INVESTMENTS...................... 272,508,201
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 374,613,090
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 102,104,889 $ 209,904,550
Net realized gain on investments....................................................... 225,623,443 525,175,186
Net change in unrealized appreciation (depreciation) on investments.................... 46,884,758 (148,830,270)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 374,613,090 586,249,466
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (51,955,739) (209,004,256)
Distributions from net realized capital gains.......................................... (39,410,229) (518,358,296)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (91,365,968) (727,362,552)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,390,587 and 4,585,160 shares, respectively]...................... 37,094,487 74,015,405
Capital stock issued in reinvestment of dividends and distributions [5,824,772 and
47,801,252 shares, respectively]...................................................... 91,365,968 727,362,552
Capital stock repurchased [(18,414,233) and (24,112,955) shares, respectively]......... (287,710,919) (394,841,365)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (159,250,464) 406,536,592
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 123,996,658 265,423,506
NET ASSETS:
Beginning of period.................................................................... 4,744,232,039 4,478,808,533
------------------ -------------------
End of period (a)...................................................................... $ 4,868,228,697 $ 4,744,232,039
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 51,098,196 $ 949,046
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$5,369,850,955).......................... $5,769,431,184
Cash....................................... 143,061
Interest and dividends receivable.......... 38,120,969
Receivable for investments sold............ 7,994,902
Receivable for capital stock sold.......... 4,136,837
--------------
Total Assets............................. 5,819,826,953
--------------
LIABILITIES
Payable for investments purchased.......... 17,318,973
Payable to investment adviser.............. 8,678,720
Payable for capital stock repurchased...... 4,088,061
Due to broker -- variation margin.......... 1,626,609
Accrued expenses and other liabilities..... 695,465
--------------
Total Liabilities........................ 32,407,828
--------------
NET ASSETS................................... $5,787,419,125
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,123,731
Paid-in capital, in excess of par........ 4,889,030,923
--------------
4,892,154,654
Undistributed net investment income........ 47,300,836
Accumulated net realized gains on
investments.............................. 442,215,145
Net unrealized appreciation on
investments.............................. 405,748,490
--------------
Net assets, June 30, 1998.................. $5,787,419,125
--------------
--------------
Net asset value and redemption price per
share, 312,373,121 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 18.53
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $460,257 foreign
withholding tax)......................... $ 19,946,557
Interest................................... 85,706,492
---------------
105,653,049
---------------
EXPENSES
Investment advisory fee.................... 16,885,730
Shareholders' reports...................... 297,000
Custodian expense.......................... 277,000
Accounting fees............................ 80,000
Audit fees................................. 36,000
Legal fees................................. 2,000
Miscellaneous expenses..................... 1,901
Directors' fees............................ 1,000
Total expenses........................... 17,580,631
Less: custodian fee credit................. (45,667)
---------------
Net Expenses............................. 17,534,964
---------------
NET INVESTMENT INCOME........................ 88,118,085
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 443,417,766
Futures.................................. 1,427,954
Short Sales.............................. 479,595
---------------
445,325,315
---------------
Net change in unrealized appreciation on:
Investments.............................. (20,841,265)
Futures.................................. 7,730,683
---------------
(13,110,582)
---------------
NET GAIN ON INVESTMENTS...................... 432,214,733
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 520,332,818
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 88,118,085 $ 160,063,955
Net realized gain on investments....................................................... 445,325,315 867,691,914
Net change in unrealized appreciation (depreciation) on investments.................... (13,110,582) (163,603,096)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 520,332,818 864,152,773
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (41,586,113) (159,343,911)
Distributions from net realized capital gains.......................................... (85,557,864) (823,214,223)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (127,143,977) (982,558,134)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,016,527 and 4,859,580 shares, respectively]...................... 40,527,340 92,765,042
Capital stock issued in reinvestment of dividends and distributions [6,883,851 and
56,453,647 shares, respectively]...................................................... 127,143,977 982,558,134
Capital stock repurchased [(14,238,318) and (18,791,325) shares, respectively]......... (263,583,127) (363,698,408)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (95,911,810) 711,624,768
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 297,277,031 593,219,407
NET ASSETS:
Beginning of period.................................................................... 5,490,142,094 4,896,922,687
------------------ -------------------
End of period (a)...................................................................... $ 5,787,419,125 $ 5,490,142,094
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 47,300,836 $ 768,864
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$702,712,520)............................ $ 701,500,808
Cash....................................... 744
Interest and dividends receivable.......... 13,520,947
Receivable for investments sold............ 3,378,350
--------------
Total Assets............................. 718,400,849
--------------
LIABILITIES
Payable for investments purchased.......... 7,397,475
Payable to investment adviser.............. 933,014
Payable for capital stock repurchased...... 416,000
Accrued expenses........................... 51,729
--------------
Total Liabilities........................ 8,798,218
--------------
NET ASSETS................................... $ 709,602,631
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 848,315
Paid-in capital, in excess of par........ 688,558,555
--------------
689,406,870
Undistributed net investment income........ 16,657,648
Accumulated net realized gains on
investments.............................. 4,749,825
Net unrealized depreciation on
investments.............................. (1,211,712)
--------------
Net assets, June 30, 1998.................. $ 709,602,631
--------------
--------------
Net asset value and redemption price per
share, 84,831,473 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 8.36
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Interest................................... $ 31,100,503
Dividends.................................. 2,352,012
---------------
33,452,515
---------------
EXPENSES
Investment advisory fee.................... 1,747,496
Accounting fees............................ 54,000
Shareholders' reports...................... 31,000
Custodian expense.......................... 20,000
Audit fees................................. 4,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 1,796
Total expenses........................... 1,859,292
Less: Custodian fee credit................. (45,728)
---------------
Net expenses............................. 1,813,564
---------------
NET INVESTMENT INCOME........................ 31,638,951
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 11,140,304
Net change in unrealized depreciation on
investments.............................. (12,139,863)
---------------
NET LOSS ON INVESTMENTS...................... (999,559)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 30,639,392
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 31,638,951 $ 47,675,767
Net realized gain on investments....................................................... 11,140,304 15,354,840
Net change in unrealized depreciation on investments................................... (12,139,863) (144,633)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 30,639,392 62,885,974
------------------ -------------------
DIVIDENDS:
Dividends from net investment income................................................... (15,716,557) (47,277,841)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [16,999,360 and 18,324,520 shares, respectively].................... 142,794,481 149,154,244
Capital stock issued in reinvestment of dividends and distributions [1,877,407 and
5,847,594 shares, respectively]....................................................... 15,716,557 47,277,841
Capital stock repurchased [(3,864,400) and (9,372,701) shares, respectively]........... (32,506,320) (76,232,015)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 126,004,718 120,200,070
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 140,927,553 135,808,203
NET ASSETS:
Beginning of period.................................................................... 568,675,078 432,866,875
------------------ -------------------
End of period (a)...................................................................... $ 709,602,631 $ 568,675,078
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 16,657,648 $ 735,254
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$1,731,387,405).......................... $3,102,668,054
Cash....................................... 859
Interest and dividends receivable.......... 3,014,617
Receivable for capital stock sold.......... 1,436,882
--------------
Total Assets............................. 3,107,120,412
--------------
LIABILITIES
Payable for investments purchased.......... 3,184,189
Payable to investment adviser.............. 2,579,964
Payable for capital stock repurchased...... 1,224,000
Due to broker -- variation margin.......... 832,375
Accrued expenses........................... 150,201
--------------
Total Liabilities........................ 7,970,729
--------------
NET ASSETS................................... $3,099,149,683
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 877,639
Paid-in capital, in excess of par........ 1,684,581,375
--------------
1,685,459,014
Undistributed net investment income........ 9,429,015
Accumulated net realized gains on
investments.............................. 29,502,806
Net unrealized appreciation on
investments.............................. 1,374,758,848
--------------
Net assets, June 30, 1998.................. $3,099,149,683
--------------
--------------
Net asset value and redemption price per
share, 87,763,950 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 35.31
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $138,801 foreign
withholding tax)......................... $ 19,876,043
Interest................................... 2,827,009
---------------
22,703,052
---------------
EXPENSES
Investment advisory fee.................... 4,795,947
Shareholders' reports...................... 133,000
Accounting fees............................ 56,000
Custodian expense.......................... 37,000
Audit fees................................. 16,000
Legal fees................................. 1,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 2,231
Total expenses........................... 5,042,178
Less: custodian fee credit................. (888)
---------------
Net Expenses............................. 5,041,290
---------------
NET INVESTMENT INCOME........................ 17,661,762
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 20,681,744
Futures.................................. 9,821,940
---------------
30,503,684
---------------
Net change in unrealized appreciation on:
Investments.............................. 386,332,864
Futures.................................. 2,969,850
---------------
389,302,714
---------------
NET GAIN ON INVESTMENTS...................... 419,806,398
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 437,468,160
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 17,661,762 $ 31,459,576
Net realized gain on investments....................................................... 30,503,684 74,021,385
Net change in unrealized appreciation on investments................................... 389,302,714 451,562,975
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 437,468,160 557,043,936
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (8,537,009) (31,155,314)
Distributions from net realized capital gains.......................................... (6,874,997) (67,389,823)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (15,412,006) (98,545,137)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [9,794,048 and 17,248,797 shares, respectively]..................... 327,909,302 484,303,403
Capital stock issued in reinvestment of dividends and distributions [447,618 and
3,309,920 shares, respectively]....................................................... 15,412,006 98,545,137
Capital stock repurchased [(3,491,113) and (6,144,732) shares, respectively]........... (114,419,005) (174,536,420)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 228,902,303 408,312,120
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 650,958,457 866,810,919
NET ASSETS:
Beginning of period.................................................................... 2,448,191,226 1,581,380,307
------------------ -------------------
End of period (a)...................................................................... $ 3,099,149,683 $ 2,448,191,226
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 9,429,015 $ 304,262
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$1,848,001,409).......................... $2,445,164,405
Cash....................................... 123,793
Interest and dividends receivable.......... 9,663,069
Receivable for capital stock sold.......... 1,517,052
--------------
Total Assets............................. 2,456,468,319
--------------
LIABILITIES
Payable for investments purchased.......... 5,402,491
Payable to investment adviser.............. 2,404,347
Payable for capital stock repurchased...... 1,516,000
Accrued expenses........................... 112,110
--------------
Total Liabilities........................ 9,434,948
--------------
NET ASSETS................................... $2,447,033,371
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,016,383
Paid-in capital, in excess of par........ 1,754,154,550
--------------
1,755,170,933
Undistributed net investment income........ 15,805,094
Accumulated net realized gains on
investments.............................. 78,894,348
Net unrealized appreciation on
investments.............................. 597,162,996
--------------
Net assets, June 30, 1998.................. $2,447,033,371
--------------
--------------
Net asset value and redemption price per
share, 101,638,309 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 24.08
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $420,767 foreign
withholding tax)......................... $ 30,105,988
Interest................................... 2,422,659
---------------
32,528,647
---------------
EXPENSES
Investment advisory fee.................... 4,471,590
Shareholders' reports...................... 101,000
Accounting fees............................ 42,000
Custodian expense.......................... 39,600
Audit fees................................. 14,000
Directors' fees............................ 1,400
Miscellaneous expenses..................... 1,726
Total expenses........................... 4,671,316
Less: custodian fee credit................. (2,251)
---------------
Net expenses............................. 4,669,065
---------------
NET INVESTMENT INCOME........................ 27,859,582
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 79,184,589
Net change in unrealized appreciation on
investments.............................. 97,666,784
---------------
NET GAIN ON INVESTMENTS...................... 176,851,373
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 204,710,955
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 27,859,582 $ 47,850,376
Net realized gain on investments....................................................... 79,184,589 209,283,667
Net change in unrealized appreciation on investments................................... 97,666,784 251,369,014
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 204,710,955 508,503,057
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (16,500,099) (43,537,704)
Distributions from net realized capital gains.......................................... (35,718,922) (179,961,221)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (52,219,021) (223,498,925)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,020,030 and 11,266,195 shares, respectively].................... 286,899,211 253,831,217
Capital stock issued in reinvestment of dividends and distributions [2,093,730 and
10,153,692 shares, respectively]...................................................... 52,219,021 223,498,925
Capital stock repurchased [(3,140,644) and (4,416,916) shares, respectively]........... (74,332,684) (96,053,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 264,785,548 381,277,142
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 417,277,482 666,281,274
NET ASSETS:
Beginning of period.................................................................... 2,029,755,889 1,363,474,615
------------------ -------------------
End of period (a)...................................................................... $ 2,447,033,371 $ 2,029,755,889
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 15,805,094 $ 4,445,611
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$4,800,586,453).......................... $6,736,998,832
Cash....................................... 291
Foreign currency, at value (cost:
$27,183)................................. 27,858
Interest and dividends receivable.......... 16,895,204
Receivable for investments sold............ 5,350,565
Receivable for capital stock sold.......... 1,589,766
--------------
Total Assets............................. 6,760,862,516
--------------
LIABILITIES
Payable for investments purchased.......... 44,822,290
Payable to investment adviser.............. 7,609,259
Accrued expenses........................... 394,613
Payable for capital stock repurchased...... 1,222,000
--------------
Total Liabilities........................ 54,048,162
--------------
NET ASSETS................................... $6,706,814,354
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,935,359
Paid-in capital, in excess of par........ 4,154,079,517
--------------
4,156,014,876
Undistributed net investment income........ 36,640,590
Accumulated net realized gains on
investments.............................. 577,729,083
Net unrealized appreciation on investments
and foreign currencies................... 1,936,429,805
--------------
Net assets, June 30, 1998.................. $6,706,814,354
--------------
--------------
Net asset value and redemption price per
share, 193,535,856 outstanding shares of
common stock (authorized 250,000,000
shares).................................. $ 34.65
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $1,109,410 foreign
withholding tax)......................... $ 47,424,764
Interest................................... 29,490,346
---------------
76,915,110
---------------
EXPENSES
Investment advisory fee.................... 14,492,613
Shareholders' reports...................... 326,000
Custodian expense.......................... 99,000
Accounting fees............................ 42,000
Audit fees................................. 40,000
Legal fees................................. 2,000
Directors' fees............................ 1,400
Miscellaneous expenses..................... 703
Total expenses........................... 15,003,716
Less: custodian fee credit................. (15,202)
---------------
Net Expenses............................. 14,988,514
---------------
NET INVESTMENT INCOME........................ 61,926,596
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 577,977,000
Foreign currencies....................... 132,673
---------------
578,109,673
---------------
Net change in unrealized appreciation on:
Investments.............................. 109,604,307
Foreign currencies....................... 31,444
---------------
109,635,751
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 687,745,424
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 749,672,020
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 61,926,596 $ 125,326,195
Net realized gain on investments and foreign currencies................................ 578,109,673 320,958,795
Net change in unrealized appreciation on investments and foreign currencies............ 109,635,751 744,788,889
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 749,672,020 1,191,073,879
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (26,337,681) (127,895,464)
Distributions from net realized capital gains.......................................... (31,316,873) (322,171,256)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (57,654,554) (450,066,720)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [6,995,716 and 12,471,611 shares, respectively]..................... 236,724,871 381,942,219
Capital stock issued in reinvestment of dividends and distributions [1,613,635 and
14,665,432 shares, respectively]...................................................... 57,654,554 450,066,720
Capital stock repurchased [(8,962,896) and (11,774,942) shares, respectively].......... (303,562,568) (363,005,143)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (9,183,143) 469,003,796
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 682,834,323 1,210,010,955
NET ASSETS:
Beginning of period.................................................................... 6,023,980,031 4,813,969,076
------------------ -------------------
End of period (a)...................................................................... $ 6,706,814,354 $ 6,023,980,031
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 36,640,590 $ 919,002
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$648,557,033)............................ $ 819,669,498
Cash....................................... 829
Receivable for investments sold............ 8,327,432
Receivable for capital stock sold.......... 8,053,460
Interest and dividends receivable.......... 325,253
--------------
Total Assets............................. 836,376,472
--------------
LIABILITIES
Payable for investments purchased.......... 8,240,487
Payable to investment adviser.............. 1,088,807
Payable for capital stock repurchased...... 327,000
Accrued expenses........................... 37,232
--------------
Total Liabilities........................ 9,693,526
--------------
NET ASSETS................................... $ 826,682,946
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 388,425
Paid-in capital, in excess of par........ 632,085,528
--------------
632,473,953
Undistributed net investment income........ 305,728
Accumulated net realized gains on
investments.............................. 22,790,800
Net unrealized appreciation on
investments.............................. 171,112,465
--------------
Net assets, June 30, 1998.................. $ 826,682,946
--------------
--------------
Net asset value and redemption price per
share, 38,842,511 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 21.28
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $39,998 foreign
withholding tax)......................... $ 2,292,891
Interest................................... 566,199
---------------
2,859,090
---------------
EXPENSES
Investment advisory fee.................... 1,909,863
Accounting fees............................ 39,000
Shareholders' reports...................... 27,000
Custodian expense.......................... 7,000
Audit fees................................. 3,000
Directors' fees............................ 1,500
Legal...................................... 150
Miscellaneous expenses..................... 1,600
Total expenses........................... 1,989,113
Less: custodian fee credit................. (1,807)
---------------
Net Expenses............................. 1,987,306
---------------
NET INVESTMENT INCOME........................ 871,784
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 23,315,757
Net change in unrealized appreciation on
investments.............................. 91,219,968
---------------
NET GAIN ON INVESTMENTS...................... 114,535,725
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 115,407,509
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 871,784 $ 871,876
Net realized gain on investments....................................................... 23,315,757 33,000,406
Net change in unrealized appreciation on investments................................... 91,219,968 54,234,653
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 115,407,509 88,106,935
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (667,836) (832,883)
Distributions from net realized capital gains.......................................... (3,383,888) (27,048,964)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (4,051,724) (27,881,847)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [13,197,690 and 12,593,772 shares, respectively].................... 265,611,570 218,245,522
Capital stock issued in reinvestment of dividends and distributions [198,951 and
1,607,079 shares, respectively]....................................................... 4,051,724 27,881,847
Capital stock repurchased [(2,522,504) and (1,044,246) shares, respectively]........... (50,273,252) (17,547,320)
Initial capitalization [-0- and (1,004,760) shares, respectively]...................... -- (19,411,166)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 219,390,042 209,168,883
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 330,745,827 269,393,971
NET ASSETS:
Beginning of period.................................................................... 495,937,119 226,543,148
------------------ -------------------
End of period (a)...................................................................... $ 826,682,946 $ 495,937,119
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 305,728 $ 101,780
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
ASSETS
Investments, at value (cost:
$504,561,933)............................ $ 703,390,521
Cash....................................... 149,736
Foreign currency, at value (cost:
$23,071,925)............................. 23,124,672
Receivable for investments sold............ 2,221,131
Dividends and interest receivable.......... 1,436,085
Forward currency contracts -- amount
receivable from counterparties........... 1,348,569
Receivable for capital stock sold.......... 54,194
--------------
Total Assets............................. 731,724,908
--------------
LIABILITIES
Payable for investments purchased.......... 2,461,557
Payable to investment adviser.............. 1,342,709
Accrued expenses and other liabilities..... 312,513
--------------
Total Liabilities........................ 4,116,779
--------------
NET ASSETS................................... $ 727,608,129
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 341,531
Paid-in capital, in excess of par........ 494,849,539
--------------
495,191,070
Undistributed net investment income........ 2,191,194
Accumulated net realized gains on
investments.............................. 29,901,202
Net unrealized appreciation on investments
and foreign currencies................... 200,324,663
--------------
Net assets, June 30, 1998.................. $ 727,608,129
--------------
--------------
Net asset value and redemption price per
share, 34,153,123 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 21.30
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of $403,863 foreign
withholding tax)......................... $ 4,771,536
Interest................................... 411,693
---------------
5,183,229
---------------
EXPENSES
Investment advisory fee.................... 2,566,167
Custodian expense.......................... 297,000
Accounting fees............................ 118,000
Shareholders' reports...................... 35,000
Audit fees................................. 4,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 1,491
---------------
3,022,658
---------------
NET INVESTMENT INCOME........................ 2,160,571
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:...............
Investments.............................. 34,871,734
Foreign currencies....................... (700,159)
---------------
34,171,575
---------------
Net change in unrealized appreciation on:
Investments.............................. 82,702,869
Foreign currencies....................... 1,290,552
---------------
83,993,421
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 118,164,996
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 120,325,567
---------------
---------------
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 2,160,571 $ 3,060,617
Net realized gain on investments and foreign currencies................................ 34,171,575 31,027,057
Net change in unrealized appreciation on investments and foreign currencies............ 83,993,421 5,107,643
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 120,325,567 39,195,317
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (2,231,228) (4,377,947)
Distributions in excess of net investment income....................................... -- (3,434,778)
Distributions from net realized capital gains.......................................... (655,550) (30,337,530)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (2,886,778) (38,150,255)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,072,294 and 5,853,862 shares, respectively]...................... 21,991,306 111,692,563
Capital stock issued in reinvestment of dividends and distributions [137,167 and
2,115,902 shares, respectively]....................................................... 2,886,778 38,150,255
Capital stock repurchased [(2,676,303) and (4,869,453) shares, respectively]........... (53,110,096) (93,116,567)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (28,232,012) 56,726,251
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 89,206,777 57,771,313
NET ASSETS:
Beginning of period.................................................................... 638,401,352 580,630,039
------------------ -------------------
End of period (a)...................................................................... $ 727,608,129 $ 638,401,352
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 2,191,194 $ 3,515,798
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
BANK NOTES -- 2.9%
FCC National Bank (a)........................... 5.54% 07/02/98 $ 12,000 $ 11,999,974
Key Bank, N.A. (a).............................. 5.54% 01/29/99 3,000 2,999,074
Key Bank, N.A. (a).............................. 5.65% 01/13/99 1,000 1,000,300
Key Bank, N.A. (a).............................. 5.52% 03/18/99 9,000 8,996,285
--------------
24,995,633
--------------
CERTIFICATES OF DEPOSIT - DOMESTIC -- 0.9%
First Tennessee, N.A............................ 5.55% 07/13/98 8,000 7,999,918
--------------
CERTIFICATES OF DEPOSIT - YANKEE -- 22.0%
Abn-Amro Bank................................... 5.65% 07/07/98 2,000 1,999,974
Barclays Bank PLC (a)........................... 5.52% 06/02/99 21,000 20,984,722
Barclays Bank PLC............................... 5.56% 02/25/99 5,000 4,998,116
Bayerische Hypo Und Wechsel Bank................ 5.68% 03/03/99 3,000 2,999,132
Bayerische Landesbank Girozentrale (a).......... 5.53% 03/23/99 20,000 19,988,015
Bayerische Landesbank Girozentrale (a).......... 5.55% 06/30/99 20,000 19,984,044
Canadian Imperial Bank of Commerce.............. 5.55% 02/10/99 15,000 14,995,584
Canadian Imperial Bank of Commerce.............. 5.71% 03/30/99 4,000 3,997,288
Canadian Imperial Bank of Commerce.............. 5.69% 03/10/99 7,000 6,996,540
Commerzbank..................................... 5.97% 08/17/98 10,000 9,999,631
Credit Agricole Indosuez........................ 5.74% 04/26/99 3,000 2,998,588
Credit Agricole Indosuez........................ 5.95% 10/21/98 5,000 4,999,267
Credit Communal De Belgique S.A................. 5.58% 08/13/98 5,000 5,000,000
Deutsche Bank................................... 5.55% 02/25/99 10,000 9,996,859
Deutsche Bank................................... 5.64% 03/22/99 5,000 4,997,921
Deutsche Bank................................... 5.66% 03/03/99 5,000 4,998,392
Rabobank Nederland.............................. 5.50% 02/09/99 13,000 12,993,903
Svenska Handelsbanken A.B....................... 5.59% 09/22/98 18,000 17,999,795
Swiss Bank Corp................................. 5.74% 06/11/99 20,000 19,989,139
--------------
190,916,910
--------------
COMMERCIAL PAPER -- 52.0%
American Express Credit Corp.................... 5.50% 09/30/98 13,000 12,819,264
American General Finance Corp................... 5.53% 09/04/98 5,000 4,950,076
American Honda Finance Corp..................... 5.57% 09/11/98 2,000 1,977,720
Aon Corp........................................ 5.55% 07/14/98 3,000 2,993,987
Associates Corp. of North America............... 5.52% 09/10/98 10,000 9,891,133
Associates Corp. of North America............... 5.53% 07/29/98 10,000 9,956,989
Associates Corp. of North America............... 5.75% 07/15/98 2,000 1,995,528
Bank of New York Co., Inc....................... 5.53% 07/21/98 7,312 7,289,536
Barton Capital Corp............................. 5.60% 07/20/98 1,390 1,385,892
BBL North America, Inc.......................... 5.52% 08/14/98 9,000 8,939,280
Beneficial Corp................................. 5.63% 07/24/98 2,000 1,992,857
BP America, Inc................................. 5.75% 07/15/98 1,000 997,764
Carnival Corp................................... 5.55% 07/27/98 4,000 3,983,967
Centric Capital Corp............................ 5.55% 09/28/98 4,000 3,945,117
Centric Capital Corp............................ 5.58% 08/28/98 10,000 9,910,100
Centric Capital Corp............................ 5.63% 07/22/98 3,000 2,990,147
Centric Capital Corp............................ 5.59% 08/14/98 2,000 1,986,335
Centric Capital Corp............................ 5.63% 07/27/98 1,581 1,574,571
Centric Capital Corp............................ 5.70% 07/20/98 5,000 4,984,958
CIT Group Holdings, Inc......................... 5.56% 08/05/98 3,000 2,983,783
CIT Group Holdings, Inc......................... 5.57% 08/27/98 6,000 5,947,085
Coca Cola Enterprises, Inc...................... 5.53% 09/24/98 10,000 9,869,431
Coca Cola Enterprises, Inc...................... 5.55% 08/07/98 2,000 1,988,592
Commercial Credit Co............................ 5.52% 08/13/98 8,000 7,947,253
Commerzbank US Finance, Inc..................... 5.53% 08/26/98 3,000 2,974,193
Corestates Capital Corp. (a).................... 5.93% 08/28/98 3,000 3,000,000
Countrywide Home Loan, Inc...................... 5.60% 07/28/98 1,000 995,800
Countrywide Home Loan, Inc...................... 5.60% 07/29/98 2,000 1,991,289
Countrywide Home Loan, Inc...................... 5.60% 08/03/98 4,000 3,979,467
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
Cregem North America, Inc....................... 5.70% 07/20/98 $ 5,277 $ 5,261,125
CXC, Inc........................................ 5.60% 08/19/98 10,783 10,700,810
Dresser Industries, Inc......................... 5.57% 07/28/98 8,583 8,547,144
Dupont E I De Nemours & Co., Inc................ 5.60% 08/13/98 3,000 2,979,933
Eastman Kodak Co................................ 5.56% 09/09/98 3,000 2,967,567
First Chicago Financial Corp.................... 5.52% 08/18/98 2,000 1,985,280
First Chicago Financial Corp.................... 5.53% 09/11/98 2,000 1,977,880
Ford Motor Credit Corp.......................... 5.55% 07/10/98 4,000 3,994,450
Ford Motor Credit Corp.......................... 5.60% 07/23/98 4,000 3,986,311
Gateway Fuel Corp............................... 5.60% 07/28/98 2,235 2,225,613
General Electric Capital Corp................... 5.53% 09/03/98 11,000 10,891,858
General Electric Capital Corp................... 5.62% 07/22/98 3,500 3,488,526
General Electric Financial Assurance Holdings,
Inc........................................... 5.53% 09/17/98 20,000 19,760,367
General Motors Corp............................. 5.58% 07/23/98 9,000 8,969,310
General Re Corp................................. 5.51% 09/10/98 5,798 5,734,993
General Signal Corp............................. 5.70% 07/13/98 2,999 2,993,302
Household Finance Corp.......................... 6.00% 07/08/98 4,000 3,995,333
IBM Credit Corp................................. 5.60% 07/23/98 2,360 2,351,923
International Lease Finance Corp................ 5.75% 07/01/98 925 925,000
Internationale Nederlanden US Fund.............. 5.80% 07/15/98 1,825 1,820,884
Marsh & McLennan Co., Inc....................... 5.53% 09/24/98 15,049 14,852,506
Marsh & McLennan Co., Inc....................... 5.60% 07/28/98 1,200 1,194,960
Mont Blanc Capital Corp......................... 5.60% 08/27/98 3,000 2,973,400
Monte Rosa Capital Corp......................... 5.63% 08/27/98 18,000 17,839,545
Morgan (J.P.) & Co., Inc........................ 5.52% 09/10/98 8,000 7,912,907
Morgan (J.P.) & Co., Inc........................ 5.55% 07/17/98 2,000 1,995,067
National Rural Utility Cooperative Finance
Co............................................ 5.60% 07/28/98 1,100 1,095,380
Nordbanken North America, Inc................... 5.52% 08/04/98 7,000 6,963,507
Nordbanken North America, Inc................... 5.52% 09/18/98 5,000 4,939,433
Norwest Corp.................................... 5.54% 08/12/98 30,000 29,806,100
Norwest Financial, Inc.......................... 5.52% 08/17/98 2,000 1,985,587
Old Line Funding Corp........................... 5.60% 07/28/98 3,000 2,987,400
Old Line Funding Corp........................... 5.60% 08/06/98 7,000 6,960,800
Old Line Funding Corp........................... 5.70% 07/27/98 10,100 10,058,422
Petrofina Delaware, Inc......................... 5.55% 08/14/98 9,868 9,801,062
Petrofina Delaware, Inc......................... 5.60% 07/21/98 2,200 2,193,156
SAFECO Corp..................................... 5.54% 09/14/98 17,000 16,803,792
Salomon Smith Barney Holdings, Inc.............. 5.53% 09/17/98 12,000 11,856,220
Salomon Smith Barney Holdings, Inc.............. 5.55% 08/24/98 6,000 5,950,050
Societe Generale North America, Inc............. 5.55% 08/24/98 7,718 7,653,748
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.62% 08/24/98 1,000 991,570
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.66% 08/27/98 2,000 1,982,077
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.90% 07/14/98 600 598,722
Thunder Bay Funding, Inc........................ 5.70% 07/09/98 6,000 5,992,400
Thunder Bay Funding, Inc........................ 5.80% 07/15/98 2,320 2,314,767
Thunder Bay Funding, Inc........................ 5.80% 07/17/98 724 722,134
Triple A-One Funding Corp....................... 5.70% 07/23/98 1,065 1,061,290
Variable Funding Capital Corp................... 5.85% 07/09/98 4,132 4,126,628
Windmill Funding Corp........................... 5.60% 07/27/98 2,504 2,493,873
Windmill Funding Corp........................... 5.60% 07/28/98 5,754 5,729,833
Windmill Funding Corp........................... 5.62% 08/28/98 10,000 9,909,455
Wood Street Funding Corp........................ 5.60% 08/28/98 5,000 4,954,889
Wood Street Funding Corp........................ 5.75% 07/29/98 2,100 2,090,608
--------------
450,591,011
--------------
LOAN PARTICIPATIONS -- 0.5%
Halliburton Co.................................. 5.75% 07/30/98 4,037 4,037,000
--------------
OTHER CORPORATE OBLIGATIONS -- 21.4%
Abbey National Treasury Services PLC............ 5.50% 02/05/99 3,000 2,998,603
Abbey National Treasury Services PLC............ 5.72% 06/11/99 14,000 13,989,863
Chase Manhattan Corp. (a)....................... 5.66% 10/15/98 4,000 4,000,456
Chrysler Financial Corp. (a).................... 5.64% 03/11/99 15,000 15,001,501
First National Bank of Chicago (a).............. 5.84% 11/09/98 5,000 5,003,712
General Motors Acceptance Corp. (a)............. 5.57% 09/21/98 4,000 3,998,983
General Motors Acceptance Corp. (a)............. 5.70% 02/02/99 10,000 9,998,281
Goldman Sachs Group L.P. (a).................... 5.62% 07/01/99 30,000 30,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
Liquid Asset Backed Security Trust 1997-7 (a)... 5.66% 12/22/98 $ 8,552 $ 8,551,918
Liquid Asset Backed Security Trust 1998-1 (a)... 5.66% 02/26/99 5,971 5,970,563
Merrill Lynch & Co., Inc. (a)................... 5.62% 10/08/98 16,000 15,999,575
Morgan (J.P.) & Co., Inc. (a)................... 5.61% 04/05/99 1,000 999,728
Morgan Stanley, Dean Witter, Discover & Co.
(a)........................................... 5.85% 10/26/98 4,000 4,000,000
Morgan Stanley, Dean Witter, Discover & Co.
(a)........................................... 5.86% 11/16/98 5,000 5,000,000
Morgan Stanley, Dean Witter, Discover & Co.
(a)........................................... 5.86% 11/16/98 2,000 2,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.65% 08/28/98 16,000 16,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.69% 03/31/99 2,000 2,000,000
Short Term Repackaged Asset Trust 1997-A (a).... 5.68% 12/15/98 8,000 8,000,000
SMM Trust Notes 1997-X (a)...................... 5.66% 12/14/98 9,000 9,000,000
Strategic Money Market Trust 1997-A (a)......... 5.69% 12/16/98 23,000 23,000,000
--------------
185,513,183
--------------
TOTAL INVESTMENTS -- 99.7%
(amortized cost $864,053,655; (b))............................................ 864,053,655
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.3%................................... 2,269,049
--------------
NET ASSETS -- 100.0%............................................................ $ 866,322,704
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British Corporation)
(a) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 1998.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and
other assets in excess of liabilities shown as a
percentage of net assets as of June 30, 1998 was as
follows:
Commercial Banks 39.7%
Asset Backed Securities 14.9%
Security Brokers & Dealers 8.6%
Bank Holding Company U.S. 7.4%
Motor Vehicle Parts 5.5%
Short-Term Business Credit 5.1%
Personal Credit 4.9%
Fire & Marine Casualty Insurance 2.6%
Insurance 1.9%
Finance Lessors 1.5%
Crude Petroleum & Natural Gas 1.5%
Beverages 1.4%
General Industrial Machinery 1.0%
Mortgage Bankers 0.8%
Electrical Services 0.6%
Construction 0.5%
Water Transport 0.5%
Accidental/Health Insurance 0.3%
Office Machines 0.3%
Photographic Equipment 0.3%
Plastic 0.3%
Equipment Rental & Leasing 0.1%
------------
99.7%
Other assets in excess of liabilities 0.3%
------------
100.0%
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
DIVERSIFIED BOND PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.2% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 1.5%
Boeing Co....................................... Aa3 8.75% 08/15/21 $ 6,250 $ 7,940,812
Raytheon Co..................................... Baa1 5.95% 03/15/01 6,500 6,474,000
--------------
14,414,812
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp....................................... Ba1 8.50% 03/15/06 600 612,900
--------------
AIRLINES -- 2.9%
Delta Air Lines, Inc., M.T.N.................... Baa3 7.79% 12/01/98 1,000 1,007,730
Delta Air Lines, Inc............................ Baa3 9.875% 05/15/00 6,000 6,395,160
United Airlines, Inc............................ Baa3 9.75% 08/15/21 3,500 4,556,475
United Airlines, Inc............................ Baa3 10.67% 05/01/04 7,000 8,363,320
United Airlines, Inc............................ Baa3 11.21% 05/01/14 5,000 6,945,900
--------------
27,268,585
--------------
ASSET-BACKED SECURITIES -- 1.4%
Advanta Mortgage Loan Trust, Series 1994-3...... Aaa 8.49% 01/25/26 8,500 8,901,094
California Infrastructure PG&E, Series 1997-1... Aaa 6.32% 09/25/05 4,000 4,059,375
--------------
12,960,469
--------------
AUTO - CARS & TRUCKS -- 0.9%
Navistar International Corp..................... Ba1 7.00% 02/01/03 3,500 3,508,750
Navistar International Corp..................... Ba3 8.00% 02/01/08 4,500 4,522,500
--------------
8,031,250
--------------
BANKS AND SAVINGS & LOANS -- 5.0%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)............................ Baa3 8.625% 06/02/00 2,000 2,030,000
Banco Ganadero, SA, M.T.N., (Colombia).......... Baa3 9.75% 08/26/99 4,100 4,161,500
Capital One Bank................................ Baa3 7.08% 10/30/01 5,000 5,107,700
Chase Manhattan Corp............................ A1 8.00% 06/15/99 2,000 2,039,180
Chemical Bank................................... Aa3 6.625% 08/15/05 2,000 2,030,820
Compass Trust Bank.............................. A3 8.23% 01/15/27 4,500 4,837,500
Kansallis-Osake Pankki, (Finland)............... A3 8.65% 01/01/49 5,000 5,127,200
Kansallis-Osake Pankki, (Finland)............... A3 10.00% 05/01/02 5,000 5,637,450
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,813,701
Skandinaviska Enskilda Bank, (Sweden)........... Baa1 7.50% 03/29/49 5,000 5,175,000
Svenska Handelsbank, (Sweden)................... A1 7.125% 03/29/49 3,500 3,570,000
Union Planters Corp............................. Baa1 8.20% 12/15/26 2,900 3,122,227
--------------
46,652,278
--------------
CABLE & PAY TELEVISION SYSTEMS -- 3.5%
Cable & Wireless Communications PLC (United
Kingdom)...................................... Baa1 6.375% 03/06/03 3,900 3,909,750
Cable & Wireless Communications PLC (United
Kingdom)...................................... Baa1 6.625% 03/06/05 2,100 2,113,125
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,440,000
Tele-Communications, Inc........................ Baa3 6.34% 02/01/02 3,500 3,487,085
Tele-Communications, Inc........................ Baa3 6.375% 09/15/99 2,750 2,762,622
Tele-Communications, Inc........................ Baa3 10.125% 04/15/22 6,300 8,725,248
Videotron Holdings, PLC, Zero Coupon (until
7/1/99) (United Kingdom)...................... Baa3 11.125% 07/01/04 8,000 7,860,160
--------------
33,297,990
--------------
COMPUTER SOFTWARE & SERVICES -- 1.2%
Computer Associates International, Inc.......... Baa1 6.375% 04/15/05 11,000 10,890,000
--------------
CONTAINERS -- 1.8%
Owens-Illinois, Inc............................. Ba1 7.80% 05/15/18 12,000 12,307,320
Owens-Illinois, Inc............................. Ba1 7.50% 05/15/10 5,000 5,069,850
--------------
17,377,170
--------------
DIVERSIFIED CONSUMER PRODUCT -- 1.1%
Philip Morris Cos., Inc......................... A2 6.15% 03/15/10 10,000 9,987,500
--------------
DRUGS & MEDICAL SUPPLIES -- 0.4%
Mallinckrodt, Inc............................... Baa2 6.30% 03/15/11 3,500 3,495,625
--------------
FINANCIAL SERVICES -- 11.9%
Advanta Corp., M.T.N............................ B2 7.25% 08/16/99 10,000 9,880,700
Aristar, Inc.................................... A3 5.75% 07/15/98 2,000 1,996,080
Aristar, Inc.................................... Baa1 7.50% 07/01/99 2,000 2,029,340
Arkwright Corp.................................. Baa3 9.625% 08/15/26 5,000 5,831,250
Calair Capital Corp............................. Ba2 8.125% 04/01/08 3,000 2,992,500
Chrysler Financial Corp......................... A2 9.50% 12/15/99 5,000 5,240,600
Conseco, Inc.................................... Baa3 6.40% 06/15/01 10,000 9,975,000
Conseco, Inc.................................... Ba2 8.70% 11/15/26 1,600 1,798,752
Conseco, Inc.................................... Ba2 8.796% 04/01/27 10,500 11,896,290
ContiFinancial Corp............................. Ba1 7.50% 03/15/02 14,000 13,993,280
ContiFinancial Corp............................. Ba1 8.125% 04/01/08 3,300 3,340,293
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 7.00% 06/15/00 9,000 9,135,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 8.75% 12/15/99 $ 3,000 $ 3,120,000
Ford Motor Credit Co............................ A1 5.75% 01/25/01 4,000 3,973,920
General Motors Acceptance Corp.................. A2 8.40% 10/15/99 3,700 3,807,633
Nationwide CSN Trust............................ A1 9.875% 02/15/25 5,000 6,087,500
PT Alatief Freeport Financial Co.,
(Netherlands)................................. B3 9.75% 04/15/01 5,750 5,117,500
Reliastar Financial Corp........................ A3 6.625% 09/15/03 5,000 5,057,500
US West Capital Funding Inc..................... A3 6.875% 07/15/28 6,500 6,503,250
--------------
111,776,388
--------------
FOOD & BEVERAGE -- 0.3%
Whitman Corp.................................... Baa2 7.50% 08/15/01 3,000 3,098,610
--------------
FOREST PRODUCTS -- 1.2%
Fort James Corp................................. Baa3 6.234% 03/15/11 5,000 4,993,750
Westvaco Corp................................... A1 9.75% 06/15/20 5,000 6,756,250
--------------
11,750,000
--------------
HOUSING RELATED -- 1.1%
American Standard Cos. Inc...................... Ba3 7.375% 04/15/05 5,000 4,968,750
Owens Corning................................... Baa3 7.50% 05/01/05 5,000 5,100,000
--------------
10,068,750
--------------
INDUSTRIAL -- 0.3%
Compania Sud Americana de Vapores, SA,
(Chile)....................................... NR 7.375% 12/08/03 3,000 2,887,500
--------------
INVESTMENT BANKERS -- 8.1%
Lehman Brothers Holdings, Inc., M.T.N........... Baa1 6.40% 08/30/00 23,250 23,380,897
Merrill Lynch, Pierce, Fenner & Smith, Inc...... Aa3 5.838% 06/24/03 15,000 14,985,000
Morgan Stanley, Dean Witter, Discover & Co...... A1 6.09% 03/09/11 6,500 6,508,450
Salomon Inc..................................... A2 6.25% 10/01/99 8,000 8,027,280
Salomon Inc..................................... A2 6.65% 07/15/01 7,000 7,091,140
Salomon, Inc.................................... A2 6.50% 03/01/00 10,000 10,076,000
Salomon, Inc., M.T.N............................ A2 6.59% 02/21/01 3,500 3,548,510
Salomon, Inc.................................... A2 7.25% 05/01/01 2,250 2,313,833
--------------
75,931,110
--------------
LEISURE & TOURISM -- 1.4%
Royal Caribbean Cruises Ltd..................... Baa3 7.00% 10/15/07 8,000 8,192,480
Royal Caribbean Cruises Ltd..................... Baa3 7.25% 08/15/06 5,000 5,202,900
--------------
13,395,380
--------------
LODGING -- 1.4%
ITT Corp........................................ Ba1 6.25% 11/15/00 7,000 6,822,200
ITT Corp........................................ Baa2 6.75% 11/15/03 7,000 6,769,700
--------------
13,591,900
--------------
MEDIA -- 8.2%
CBS Corp........................................ Ba1 7.15% 05/20/05 9,400 9,400,000
News America Holding, Inc....................... Baa3 6.703% 05/21/34 36,000 36,315,000
Paramount Communications, Inc................... Ba2 7.50% 01/15/02 5,000 5,135,050
Time Warner, Inc................................ Baa3 8.11% 08/15/06 7,800 8,598,408
Turner Broadcasting System, Inc................. Baa3 7.40% 02/01/04 13,500 14,111,280
Viacom, Inc..................................... Ba2 7.75% 06/01/05 3,050 3,249,623
--------------
76,809,361
--------------
OIL & GAS -- 1.9%
B.J. Services Co................................ Baa2 7.00% 02/01/06 5,000 5,145,000
Occidental Petroleum Corp....................... Baa2 10.125% 11/15/01 5,000 5,568,900
Occidental Petroleum Corp....................... Baa2 11.125% 08/01/10 5,000 6,787,700
--------------
17,501,600
--------------
OIL & GAS SERVICES -- 3.5%
K N Energy, Inc................................. Baa2 6.30% 03/01/21 15,000 15,024,900
R&B Falcon Corp................................. Ba1 6.50% 04/15/03 6,500 6,432,400
R&B Falcon Corp................................. Ba1 6.75% 04/15/05 6,100 6,031,253
R&B Falcon Corp................................. Ba1 7.375% 04/15/18 5,750 5,799,393
--------------
33,287,946
--------------
RAILROADS -- 0.6%
Norfolk Southern Corp........................... Baa1 7.80% 05/15/27 5,000 5,725,000
--------------
REAL ESTATE INVESTMENT TRUST -- 1.5%
ERP Operating L.P............................... A3 6.63% 04/13/15 6,500 6,532,500
Felcor Suite Hotels, Inc........................ Ba1 7.625% 10/01/07 7,900 7,861,843
--------------
14,394,343
--------------
RESTAURANTS -- 1.1%
Darden Restaurants, Inc......................... Baa1 7.125% 02/01/16 10,000 10,051,300
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
RETAIL -- 3.9%
Federated Department Stores, Inc................ Baa2 8.125% 10/15/02 $ 5,250 $ 5,608,050
Federated Department Stores, Inc................ Baa2 8.50% 06/15/03 10,200 11,118,000
Federated Department Stores, Inc................ Baa2 10.00% 02/15/01 3,000 3,267,000
Kroger Co., (The)............................... Baa3 6.375% 03/01/08 6,600 6,554,724
Meyer, (Fred) Inc............................... Ba2 7.15% 03/01/03 1,500 1,507,395
Meyer, (Fred) Inc............................... Ba2 7.375% 03/01/05 5,000 5,012,250
Rite Aid Corp................................... Baa1 6.70% 12/15/01 4,000 4,060,000
--------------
37,127,419
--------------
SUPRANATIONAL -- 0.1%
International Bank for Reconstruction and
Development................................... Aaa 12.375% 10/15/02 750 932,760
--------------
TELECOMMUNICATIONS -- 0.8%
Qwest Communications International Inc.......... Ba1 Zero 10/15/07 10,500 7,875,000
--------------
UTILITIES -- 3.6%
Arkla, Inc., M.T.N.............................. Baa1 9.32% 12/18/00 2,000 2,132,360
Commonwealth Edison Co.......................... Baa3 7.625% 01/15/07 7,525 7,999,301
El Paso Electric Company........................ Ba2 9.40% 05/01/11 4,000 4,554,360
Niagara Mohawk Power............................ Ba1 6.875% 04/01/03 4,000 4,070,360
Niagara Mohawk Power............................ Ba1 7.375% 08/01/03 8,000 8,340,480
Niagara Mohawk Power............................ Ba1 8.00% 06/01/04 5,000 5,351,500
Pennsylvania Power & Light Co................... A3 9.375% 07/01/21 1,150 1,276,282
--------------
33,724,643
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 21.4%
Federal Farm Credit Bank........................ 8.65% 10/01/99 150 155,274
Resolution Funding Corp......................... 8.125% 10/15/19 700 893,921
Resolution Funding Corp......................... Zero 10/15/15 17,100 6,252,273
Resolution Funding Corp......................... 8.625% 01/15/21 200 267,250
United States Treasury Bond..................... 8.125% 08/15/19 15,300 19,746,486
United States Treasury Bond..................... 5.50% 05/31/00 20,000 19,996,800
United States Treasury Note..................... 5.50% 02/29/00 6,100 6,098,109
United States Treasury Note..................... 5.50% 02/15/08 25 24,984
United States Treasury Note..................... 5.625% 05/15/08 31,600 32,029,444
United States Treasury Note..................... 6.125% 11/15/27 87,725 94,002,601
United States Treasury Note..................... 6.50% 05/15/05 5,600 5,910,632
United States Treasury Note..................... 7.25% 05/15/04 2,200 2,387,000
United States Treasury Note..................... 7.125% 09/30/99 3,500 3,566,710
United States Treasury Note..................... 7.50% 02/15/05 4,100 4,538,167
United States Treasury Strip.................... Zero 02/15/19 17,000 5,254,190
--------------
201,123,841
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 1.0%
10/01/16
-
Federal National Mortgage Association........... 9.00% 09/01/21 450 477,767
05/20/02
-
Government National Mortgage Association........ 7.50% 02/15/26 8,953 9,204,270
--------------
9,682,037
--------------
FOREIGN GOVERNMENT BONDS -- 2.1%
City Of Moscow, (Russia)........................ Ba2 9.50% 05/31/00 2,000 1,680,000
City Of Moscow, (Russia)........................ Ba2 9.50% 05/31/00 1,000 840,000
City of St. Petersburg, (Russia)................ NR 9.50% 06/18/02 5,200 4,160,000
Republic of Panama, (Panama).................... Ba1 7.875% 02/13/02 8,000 7,840,000
Rio De Janeiro, (Brazil)........................ B1 10.375% 07/12/99 5,000 5,000,000
--------------
19,520,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $871,780,737)......................................................................... 895,243,467
--------------
SHORT-TERM INVESTMENT -- 3.3%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $30,681,000; Note 5).................... 5.715% 07/01/98 30,681 30,681,000
--------------
TOTAL INVESTMENTS -- 98.5%
(cost $902,461,737; Note 6)................................................................. 925,924,467
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.5%................................................. 14,246,643
--------------
NET ASSETS -- 100.0%.......................................................................... $ 940,171,110
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.4% PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 57.4% RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AEROSPACE -- 0.4%
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 $ 21,400 $ 21,314,400
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 2,875 2,936,813
--------------
AIRLINES -- 3.6%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 25,743,800
10.375%, 02/01/11 (c)......................... Baa3 37,905 50,018,680
United Airlines, Inc.,
5.908%, 03/02/04.............................. Aa2 7,812 7,780,721
9.75%, 08/15/21............................... Baa3 8,125 10,577,531
10.67%, 05/01/04.............................. Baa3 46,665 55,753,475
11.21%, 05/01/14.............................. Baa3 18,433 25,606,755
--------------
175,480,962
--------------
ASSET-BACKED SECURITIES -- 0.7%
California Infrastructure,
6.14%, 03/25/02............................... Aaa 5,500 5,521,450
6.17%, 03/25/03............................... Aaa 6,000 6,041,280
6.28%, 09/25/05............................... Aaa 7,000 7,101,920
Standard Credit Card Master
Trust, 5.95%, 10/07/04 (c).................... Aaa 4,650 4,639,816
Team Financing Corp.,
7.35%, 05/15/03............................... Aa2 11,000 11,388,410
--------------
34,692,876
--------------
BANKS AND SAVINGS & LOANS -- 4.3%
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 7,200 7,308,000
Bankers Trust New York Corp.,
5.754%, 08/06/00.............................. A2 7,500 7,473,750
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,478,250
7.08%, 10/30/01............................... Baa3 35,100 35,856,054
7.35%, 06/20/00............................... Baa3 8,100 8,267,751
8.125%, 03/01/00.............................. Baa3 13,150 13,534,637
Chemical Banking,
5.891%, 02/28/00.............................. Aa3 4,000 4,017,600
Citicorp,
5.748%, 08/13/01.............................. Aa3 3,000 3,005,400
First Chicago NBD Corp.,
5.788%, 09/23/02.............................. A1 8,000 7,964,000
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49 (c)........................... A3 10,000 10,254,400
Merita Bank Ltd.,
7.50%, 12/29/49............................... NR 15,000 15,561,600
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 8,400 8,658,132
Nationsbank Corp.,
5.858%, 06/19/02.............................. A1 5,000 5,028,300
Okobank, (Finland),
7.238%, 09/29/49 (c).......................... A3 18,750 18,328,125
7.325%, 10/29/49.............................. A3 9,000 9,081,000
7.70%, 10/29/49............................... A3 3,500 3,531,500
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (c)........................... Aa3 $ 17,400 $ 17,740,342
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,200,000
--------------
211,288,841
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.3%
Cable & Wire Communications, Inc.,
6.375%, 03/06/03.............................. Baa1 8,400 8,421,000
6.625%, 03/06/05.............................. Baa1 4,600 4,628,750
Continental Cablevision,
Inc., 8.50%, 09/15/01......................... Ba2 5,545 5,889,455
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Baa3 12,000 11,955,720
6.375%, 09/15/99.............................. Baa3 8,000 8,036,720
7.375%, 02/15/00.............................. Ba1 40,700 41,556,735
8.25%, 01/15/03............................... Baa3 2,000 2,160,360
9.25%, 04/15/02............................... Baa3 9,500 10,472,040
9.875%, 06/15/22.............................. Baa3 12,900 17,504,010
--------------
110,624,790
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.7%
Computer Associates International, Inc.,
6.375%, 04/15/05.............................. Baa1 23,000 22,770,000
6.50%, 04/15/08............................... Baa1 11,700 11,551,878
--------------
34,321,878
--------------
CONSULTING -- 1.0%
Comdisco, Inc., M.T.N.,
5.94%, 04/13/00............................... Baa1 12,500 12,468,750
6.11%, 08/04/99............................... Baa1 12,500 12,533,375
6.375%, 11/30/01.............................. Baa1 21,500 21,591,160
--------------
46,593,285
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,700,650
--------------
CONTAINERS -- 0.9%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 30,000 30,291,000
7.50%, 05/15/10............................... Ba1 800 811,176
7.80%, 05/15/18............................... Ba1 12,000 12,307,320
--------------
43,409,496
--------------
DIVERSIFIED CONSUMER PRODUCT -- 0.1%
National Australia,
6.40%, 12/10/07............................... 5,600 5,772,088
--------------
DRUGS & MEDICAL SUPPLIES -- 0.2%
Mallinckrodt, Inc.,
6.30%, 03/15/01............................... Baa2 11,500 11,485,625
--------------
FINANCIAL SERVICES -- 14.3%
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 10,000 14,561,700
7.25%, 08/16/99............................... B2 3,000 2,964,210
7.50%, 08/28/00............................... Ba2 35,000 33,813,150
Arkwright Corp.,,
9.625%, 08/15/26.............................. Baa3 8,000 9,330,000
AT&T Capital Corp., M.T.N.,
6.25%, 05/15/01............................... Baa3 35,500 35,587,330
Avco Financial Services,
5.739%, 11/17/99.............................. A2 3,500 3,496,150
Bear Stearns & Co,
6.50%, 07/05/00............................... A2 20,000 20,180,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Central Hispano Financial Services,
6.219%, 04/28/05.............................. A3 $ 10,000 $ 10,040,000
Conseco, Inc.,
6.80%, 06/15/05 (c)........................... Baa3 13,000 12,951,250
8.70%, 11/15/26............................... Ba2 29,813 33,515,809
8.796%, 04/01/27.............................. Ba2 9,400 10,650,012
ContiFinancial Corp.,
7.50%, 03/15/02............................... Ba1 34,000 33,983,680
8.375%, 08/15/03.............................. Ba1 16,085 16,657,465
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,424,707
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 11,200 11,256,000
6.95%, 03/01/04............................... Baa2 17,500 17,740,625
7.00%, 06/15/00............................... Baa2 23,000 23,345,000
7.50%, 06/15/03............................... Baa3 5,000 5,297,500
8.75%, 12/15/99............................... Baa2 5,000 5,200,000
Ford Motor Credit Co.,
5.813%, 02/13/03.............................. A1 4,000 3,999,040
General Motors Acceptance Corp., M.T.N.,
5.95%, 04/20/01............................... A2 30,300 30,224,250
Lehman Brothers Holdings, Inc.,
5.988%, 09/03/02.............................. Baa1 4,000 3,992,360
6.33%, 08/01/00............................... Baa1 30,000 30,166,200
6.40%, 08/30/00............................... Baa1 79,000 79,444,770
6.71%, 10/12/99............................... Baa1 6,000 6,056,940
6.89%, 10/10/00............................... Baa1 10,545 10,729,221
7.125%, 07/15/02.............................. Baa1 16,000 16,516,320
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,224,425
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
5.838%, 06/24/03.............................. Aa3 4,000 3,996,000
Morgan Stanley Dean Witter & Co., M.T.N.,
5.89%, 03/20/00............................... A1 20,000 19,986,000
5.941%, 02/13/01.............................. A1 2,000 2,000,000
6.09%, 03/09/01............................... A1 21,000 21,027,300
PaineWebber Group, Inc.,
7.015%, 02/10/04.............................. Baa1 6,000 6,250,080
7.625%, 10/15/08.............................. Baa1 5,000 5,418,400
PT Alatief Freeport Financial Co., Sr. Notes
(Netherlands),
9.75%, 04/15/01............................... B3 8,950 7,965,500
Salomon, Inc.,
6.50%, 03/01/00 (c)........................... A2 38,500 38,792,600
6.59%, 02/21/01............................... A2 9,750 9,885,135
6.75%, 02/15/03............................... Baa1 5,000 5,100,350
7.25%, 05/01/01............................... A2 8,625 8,869,691
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,016,200
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 36,454 36,444,440
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 12,000 12,919,560
US West Capital Corp.,
6.875%, 07/15/28.............................. A3 12,700 12,706,350
--------------
695,726,120
--------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 0.4%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 $ 17,500 $ 17,478,125
--------------
INDUSTRIAL -- 1.8%
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03.............................. NR 7,600 7,315,000
Security Capital Group,
6.95%, 06/15/05............................... Baa1 4,500 4,494,375
7.70%, 06/15/28............................... Baa1 5,000 5,052,700
U.S. Filter Corp.,
6.375%, 05/15/01.............................. Ba1 50,000 49,941,500
6.50%, 05/15/03............................... Baa1 20,000 19,955,400
--------------
86,758,975
--------------
LODGING -- 0.9%
ITT Corp.,
6.25%, 11/15/00............................... Ba1 23,703 23,100,944
6.75%, 11/15/03............................... Baa2 21,500 20,792,650
--------------
43,893,594
--------------
MEDIA -- 1.5%
CBS Corp.,
7.15%, 05/20/05............................... Ba1 9,100 9,100,000
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,598,539
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,564,285
8.11%, 08/15/06............................... Baa3 1,500 1,653,540
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 27,975 29,805,964
--------------
74,722,328
--------------
MISCELLANEOUS -- 0.3%
Loewen Group, Inc.,
7.20%, 06/01/03............................... Ba1 10,000 9,961,600
7.60%, 06/01/08............................... Ba1 6,100 6,072,977
--------------
16,034,577
--------------
OIL & GAS SERVICES -- 3.5%
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,116,000
KN Energy, Inc.,
6.30%, 03/01/01............................... Baa2 27,550 27,595,733
R&B Falcon Corp.,
6.50%, 04/15/03............................... Ba1 37,050 36,664,680
6.75%, 04/15/05............................... Ba1 34,000 33,616,820
Vastar Resources,
6.00%, 04/20/10............................... Baa1 10,000 9,996,000
Williams Companies, Inc.,
5.95%, 02/15/00............................... Baa2 37,000 36,863,100
5.95%, 02/15/10............................... 22,000 21,918,600
--------------
170,770,933
--------------
REAL ESTATE INVESTMENT TRUST -- 2.3%
ERP Operating, L.P.,
6.50%, 06/15/04............................... Baa1 6,000 5,988,000
6.625%, 02/15/05.............................. Bbb1 17,938 17,950,557
6.63%, 04/13/15............................... A3 22,400 22,512,000
Felcor Suite Hotels, Inc.,
7.625%, 10/01/07.............................. Ba1 8,000 7,961,360
First Industrial, L.P.,
6.50%, 04/05/11............................... Baa2 9,000 9,011,250
Gables Realty Trust,
6.80%, 03/15/05............................... Baa2 7,500 7,443,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Simon Debartolo Group, Inc.,
6.75%, 07/15/04............................... Baa1 $ 8,000 $ 7,990,640
6.75%, 06/15/05............................... Baa1 17,500 17,390,625
6.875%, 10/27/05.............................. Baa1 14,858 14,827,987
--------------
111,076,169
--------------
RETAIL -- 3.6%
Federated Department Stores, Inc.,
8.125%, 10/15/02 (c).......................... Baa2 41,030 43,828,246
8.50%, 06/15/03............................... Baa2 32,400 35,316,000
10.00%, 02/15/01.............................. Baa2 54,037 58,846,293
Fred Meyer, Inc.,
7.15%, 03/01/03............................... Ba2 30,000 30,147,900
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,075,000
--------------
173,213,439
--------------
TELECOMMUNICATIONS -- 1.2%
360 Communication Co.,
7.125%, 03/01/03.............................. Baa1 22,550 23,389,537
7.50%, 03/01/06............................... Baa1 25,000 26,649,500
7.60%, 04/01/09............................... Baa1 6,250 6,762,313
--------------
56,801,350
--------------
TOBACCO -- 1.3%
Philip Morris Cos., Inc.,
6.15%, 03/15/10............................... A2 40,000 39,950,000
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 6,900 7,195,804
9.25%, 08/15/13............................... Baa3 13,571 14,638,495
--------------
61,784,299
--------------
TRANSPORTATION/TRUCKING/SHIPPING
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa3 500 517,860
--------------
UTILITIES -- 1.1%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,537,880
7.625%, 01/15/07.............................. Baa3 16,000 17,008,480
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 4,000 4,074,840
6.875%, 12/15/07.............................. Baa1 4,550 4,671,986
Hydro-Quebec, (Canada),
5.813%, 09/29/49.............................. A+ 4,000 3,540,000
Niagara Mohawk Power,
7.375%, 08/01/03.............................. Ba1 10,000 10,425,600
--------------
54,258,786
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 10.4%
United States Treasury Bonds,
5.50%, 05/31/03............................... 11,100 11,101,776
8.00%, 11/15/21............................... 97,700 125,941,162
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
United States Treasury Notes,
5.375%, 02/15/01.............................. $ 11,200 $ 11,161,472
5.50%, 01/31/03............................... 14,000 13,989,080
5.50%, 02/15/08............................... 6,600 6,595,842
5.625%, 05/15/08.............................. 55,125 55,874,149
5.75%, 04/30/03............................... 27,680 27,871,584
5.875%, 02/15/04.............................. 20,200 20,572,488
6.125%, 11/15/27.............................. 153,350 164,323,726
6.50%, 05/31/01............................... 43,400 44,511,908
6.50%, 05/15/05............................... 15,900 16,781,973
7.875%, 11/15/04.............................. 6,500 7,300,280
--------------
506,025,440
--------------
FOREIGN GOVERNMENT BONDS -- 0.5%
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 13,860,000
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 9,000 7,200,000
Republic of Panama,
6.75%, 05/14/02............................... Ba1 923 900,023
United Mexican States,
7.002%, 06/27/02.............................. Ba2 1,000 976,000
--------------
22,936,023
--------------
TOTAL LONG-TERM BONDS
(cost $2,749,284,969).................................................... 2,792,619,722
--------------
<CAPTION>
VALUE
COMMON STOCKS -- 36.3% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.7%
Aeroquip-Vickers, Inc........................... 4,400 256,850
AlliedSignal, Inc............................... 88,300 3,918,312
Boeing Co....................................... 156,500 6,974,031
GenCorp, Inc.................................... 100,000 2,525,000
General Dynamics Corp........................... 19,700 916,050
Goodrich (B.F.) Co.............................. 11,300 560,762
Litton Industries, Inc. (c)..................... 78,900 4,655,100
Lockheed Martin Corp............................ 30,400 3,218,600
Northrop Grumman Corp........................... 10,500 1,082,812
Parker-Hannifin Corp............................ 43,925 1,674,641
Raytheon Co. (Class "B" Stock).................. 38,300 2,264,487
United Technologies Corp........................ 36,500 3,376,250
--------------
31,422,895
--------------
AIRLINES -- 0.6%
AMR Corp. (a)................................... 186,200 15,501,150
Delta Air Lines, Inc............................ 11,700 1,512,225
Southwest Airlines Co........................... 34,600 1,025,025
US Airways Group, Inc. (a)...................... 129,200 10,239,100
--------------
28,277,500
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 73,800 2,449,237
Nike, Inc. (Class "B" Stock).................... 45,500 2,215,281
Phillips-Van Heusen Corp........................ 96,300 1,420,425
Reebok International Ltd. (a)................... 8,800 243,650
--------------
6,328,593
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Chrysler Corp................................... 249,400 14,059,925
Cummins Engine Co., Inc......................... 6,000 307,500
Dana Corp....................................... 16,400 877,400
Echlin, Inc..................................... 9,900 485,719
Ford Motor Co................................... 283,500 16,726,500
General Motors Corp............................. 221,800 14,819,012
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Genuine Parts Co................................ 28,000 $ 967,750
Johnson Controls, Inc........................... 13,200 754,875
Mascotech, Inc.................................. 96,000 2,304,000
Midas, Inc...................................... 22,500 452,812
Navistar International Corp. (a)................ 11,300 326,287
PACCAR, Inc..................................... 12,200 637,450
Titan International, Inc........................ 102,950 1,750,150
TRW, Inc........................................ 19,300 1,054,262
--------------
55,523,642
--------------
BANKS AND SAVINGS & LOANS -- 2.5%
Ahmanson (H.F.) & Co............................ 17,100 1,214,100
Banc One Corp................................... 109,900 6,133,794
Bank of New York Co., Inc....................... 59,000 3,580,562
BankAmerica Corp................................ 108,600 9,387,112
BankBoston Corp................................. 45,600 2,536,500
Bankers Trust Corp.............................. 15,300 1,775,756
BB&T Corp....................................... 22,300 1,508,037
Chase Manhattan Corp............................ 132,000 9,966,000
Citicorp........................................ 71,500 10,671,375
Comerica, Inc................................... 24,700 1,636,375
First Chicago NBD Corp.......................... 45,600 4,041,300
First Union Corp................................ 151,500 8,824,875
Fleet Financial Group, Inc...................... 42,700 3,565,450
Golden West Financial Corp...................... 8,900 946,181
Huntington Bancshares, Inc...................... 30,000 1,005,000
KeyCorp......................................... 68,800 2,451,000
Mellon Bank Corp................................ 39,900 2,778,037
Mercantile Bancorporation, Inc.................. 20,500 1,032,687
Morgan (J.P.) & Co., Inc........................ 27,800 3,256,075
National City Corp.............................. 51,400 3,649,400
NationsBank Corp................................ 147,275 11,266,537
Northern Trust Corp............................. 17,500 1,334,375
Norwest Corp.................................... 118,300 4,421,462
PNC Bank Corp................................... 47,800 2,572,237
Providian Financial Corp........................ 14,900 1,170,581
Republic New York Corp.......................... 17,100 1,076,231
Summit Bancorp.................................. 27,600 1,311,000
Suntrust Banks, Inc............................. 33,000 2,683,312
Synovus Financial Corp.......................... 41,150 977,312
U.S. Bancorp.................................... 115,300 4,957,900
Wachovia Corp................................... 32,300 2,729,350
Wells Fargo & Co................................ 13,600 5,018,400
--------------
119,478,313
--------------
BUSINESS SERVICES
Equifax, Inc.................................... 23,500 853,344
Omnicom Group, Inc.............................. 25,400 1,266,825
--------------
2,120,169
--------------
CHEMICALS -- 0.9%
Air Products & Chemicals, Inc................... 36,900 1,476,000
Dow Chemical Co................................. 35,500 3,432,406
Du Pont (E.I.) de Nemours & Co.................. 177,200 13,223,550
Eastman Chemical Co............................. 12,300 765,675
Ferro Corp...................................... 137,100 3,470,344
FMC Corp. (a)................................... 5,400 368,212
Hercules, Inc................................... 15,100 620,987
Millennium Chemicals, Inc....................... 148,927 5,044,902
Monsanto Co..................................... 92,900 5,190,787
Engelhard Corp.................................. 22,600 457,650
Grace (W.R.) & Co............................... 11,600 197,925
Great Lakes Chemical Corp....................... 9,400 370,712
Morton International, Inc....................... 20,400 510,000
Praxair, Inc.................................... 24,700 1,156,269
Raychem Corp.................................... 13,300 393,181
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Nalco Chemical Co............................... 10,400 $ 365,300
OM Group, Inc................................... 64,400 2,656,500
Rohm & Haas Co.................................. 9,600 997,800
Sigma-Aldrich Corp.............................. 15,700 551,462
Union Carbide Corp.............................. 19,300 1,030,137
--------------
42,279,799
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (a)............................... 126,900 2,649,037
Deluxe Corp..................................... 12,700 454,819
Moore Corp. Ltd................................. 13,900 184,175
--------------
3,288,031
--------------
COMPUTER SERVICES -- 1.4%
3Com Corp. (a).................................. 55,500 1,703,156
Adobe Systems, Inc.............................. 10,800 458,325
Autodesk, Inc................................... 7,300 281,962
Automatic Data Processing, Inc.................. 46,800 3,410,550
Bay Networks, Inc. (a).......................... 34,400 1,109,400
Cabletron Systems, Inc. (a)..................... 24,800 333,250
Ceridian Corp. (a).............................. 11,300 663,875
Computer Associates International, Inc.......... 85,500 4,750,594
Computer Sciences Corp. (a)..................... 24,400 1,561,600
EMC Corp. (a)................................... 77,700 3,481,931
First Data Corp................................. 67,000 2,231,937
Microsoft Corp. (a)............................. 381,300 41,323,387
Novell, Inc. (a)................................ 55,000 701,250
Oracle Corp. (a)................................ 154,100 3,785,081
Parametric Technology Corp. (a)................. 40,200 1,090,425
Silicon Graphics, Inc. (a)...................... 29,400 356,475
--------------
67,243,198
--------------
COMPUTERS -- 1.3%
Apple Computer, Inc. (a)........................ 20,800 596,700
Cisco Systems, Inc. (a)......................... 159,400 14,674,762
Compaq Computer Corp............................ 258,789 7,343,138
Data General Corp. (a).......................... 7,600 113,525
Dell Computer Corp. (a)......................... 102,200 9,485,437
Gateway 2000, Inc. (a).......................... 24,300 1,230,187
Hewlett-Packard Co.............................. 162,900 9,753,637
International Business Machines Corp............ 152,300 17,485,944
Seagate Technology, Inc. (a).................... 37,900 902,494
Sun Microsystems, Inc. (a)...................... 59,100 2,567,156
--------------
64,152,980
--------------
CONSTRUCTION -- 0.3%
Centex Corp..................................... 9,300 351,075
Fluor Corp...................................... 13,100 668,100
Foster Wheeler Corp............................. 6,400 137,200
Oakwood Homes Corp.............................. 141,600 4,248,000
Owens Corning................................... 8,400 342,825
Pulte Corp...................................... 6,600 197,175
Standard Pacific Corp........................... 156,600 3,229,875
Webb (Del E.) Corp.............................. 142,600 3,698,687
--------------
12,872,937
--------------
CONTAINERS -- 0.1%
Ball Corp....................................... 4,700 188,881
Bemis Co., Inc.................................. 8,300 339,262
Crown Cork & Seal Co., Inc...................... 20,100 954,750
Owens-Illinois, Inc. (a)........................ 82,500 3,691,875
Sealed Air Corp. (a)............................ 12,900 474,075
Stone Container Corp. (a)....................... 15,600 243,750
--------------
5,892,593
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)............ 8,900 $ 258,100
Avon Products, Inc.............................. 20,700 1,604,250
Colgate-Palmolive Co............................ 46,300 4,074,400
Gillette Co..................................... 175,400 9,942,987
International Flavors & Fragrances, Inc......... 17,100 742,781
Procter & Gamble Co............................. 210,200 19,141,337
--------------
35,763,855
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp............................. 16,100 865,375
Pitney Bowes, Inc............................... 42,800 2,059,750
Unisys Corp. (a)................................ 39,100 1,104,575
Xerox Corp...................................... 51,000 5,182,875
--------------
9,212,575
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 25,400 1,600,200
Fortune Brands, Inc............................. 26,900 1,033,969
General Electric Capital Corp................... 512,500 46,637,500
--------------
49,271,669
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.2%
Abbott Laboratories............................. 239,600 9,793,650
Allergan, Inc................................... 10,200 473,025
ALZA Corp. (a).................................. 13,400 579,550
American Home Products Corp..................... 203,500 10,531,125
Amgen, Inc. (a)................................. 41,200 2,693,450
Bard (C.R.), Inc................................ 8,900 338,756
Bausch & Lomb, Inc.............................. 8,700 436,087
Baxter International, Inc....................... 43,900 2,362,369
Becton, Dickinson & Co.......................... 19,100 1,482,637
Biomet, Inc..................................... 17,500 578,594
Boston Scientific Corp. (a)..................... 30,500 2,184,562
Bristol-Myers Squibb Co......................... 155,700 17,895,769
Cardinal Health, Inc............................ 17,200 1,612,500
Guidant Corp.................................... 23,600 1,682,975
Johnson & Johnson............................... 210,600 15,531,750
Lilly (Eli) & Co................................ 173,700 11,475,056
Mallinckrodt, Inc............................... 11,400 338,437
Medtronic, Inc.................................. 73,400 4,679,250
Merck & Co., Inc................................ 187,700 25,104,875
Pfizer, Inc..................................... 202,500 22,009,219
Pharmacia & Upjohn, Inc......................... 79,500 3,666,937
Schering-Plough Corp............................ 114,700 10,509,387
St. Jude Medical, Inc. (a)...................... 14,400 530,100
United States Surgical Corp..................... 11,900 542,937
Warner-Lambert Co............................... 127,900 8,873,062
--------------
155,906,059
--------------
ELECTRONICS -- 0.9%
Advanced Micro Devices, Inc. (a)................ 22,200 378,787
AMP Inc......................................... 34,500 1,185,937
Applied Materials, Inc. (a)..................... 57,300 1,690,350
Belden, Inc..................................... 68,200 2,088,625
EG&G, Inc....................................... 7,100 213,000
Emerson Electric Co............................. 69,400 4,190,025
Grainger (W.W.), Inc............................ 15,600 777,075
Harris Corp..................................... 12,500 558,594
Honeywell, Inc.................................. 19,900 1,662,894
Intel Corp...................................... 256,200 18,990,825
KLA-Tencor Corp. (a)............................ 13,200 365,475
LSI Logic Corp. (a)............................. 22,200 511,987
Micron Technology, Inc. (a)..................... 33,100 821,294
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Motorola, Inc................................... 93,500 $ 4,914,594
Perkin-Elmer Corp............................... 7,600 472,625
Rockwell International Corp..................... 31,500 1,513,969
Tektronix, Inc.................................. 7,900 279,462
Texas Instruments, Inc.......................... 61,100 3,562,894
Thomas & Betts Corp............................. 8,600 423,550
--------------
44,601,962
--------------
ENGINEERING & CONSTRUCTION
Giant Cement Holdings, Inc. (a)................. 59,100 1,691,737
--------------
ENVIRONMENTAL SERVICES
Browning-Ferris Industries, Inc................. 28,800 1,000,800
--------------
FINANCIAL SERVICES -- 2.1%
American Express Co............................. 72,800 8,299,200
Associates First Capital Corp................... 79,327 6,098,263
Beneficial Corp................................. 8,300 1,271,456
Block (H.R.), Inc............................... 16,400 690,850
Countrywide Credit Industries, Inc.............. 17,000 862,750
Federal Home Loan Mortgage Corp................. 108,800 5,120,400
Federal National Mortgage Association........... 166,200 10,096,650
Fifth Third Bancorp............................. 36,500 2,299,500
Franklin Resource, Inc.......................... 39,600 2,138,400
Green Tree Financial Corp....................... 21,300 911,906
Household International, Inc.................... 50,300 2,502,425
Lehman Brothers Holdings, Inc................... 190,000 14,736,875
MBNA Corp....................................... 78,500 2,590,500
Merrill Lynch & Co., Inc........................ 111,400 10,276,650
Morgan Stanley Dean Witter & Co................. 147,690 13,495,174
Schwab (Charles) Corp........................... 41,600 1,352,000
State Street Corp............................... 25,200 1,751,400
Sunamerica, Inc................................. 30,600 1,757,587
Transamerica Corp............................... 9,800 1,128,225
Travelers Group, Inc............................ 230,550 13,977,094
Washington Mutual, Inc.......................... 60,450 2,625,797
--------------
103,983,102
--------------
FOOD & BEVERAGES -- 1.7%
Anheuser-Busch Companies, Inc................... 76,700 3,619,281
Archer-Daniels-Midland Co....................... 89,500 1,734,062
Bestfoods....................................... 45,100 2,618,619
Brown-Forman Corp. (Class "B" Stock)............ 10,800 693,900
Campbell Soup Co................................ 71,500 3,798,437
Coca-Cola Co.................................... 387,300 33,114,150
ConAgra, Inc.................................... 74,500 2,360,719
Coors (Adolph) Co. (Class "B" Stock)............ 5,800 197,200
General Mills, Inc.............................. 24,800 1,695,700
Giant Food, Inc. (Class "A" Stock).............. 9,400 404,787
Heinz (H.J.) & Co............................... 57,200 3,210,350
Hershey Foods Corp.............................. 22,400 1,545,600
Kellogg Co...................................... 64,400 2,419,025
PepsiCo, Inc.................................... 237,600 9,786,150
Pioneer Hi-Bred International, Inc.............. 38,300 1,584,662
Quaker Oats Co.................................. 21,700 1,192,144
Ralston-Ralston Purina Group.................... 16,800 1,962,450
Sara Lee Corp................................... 74,100 4,144,969
Seagram Co., Ltd................................ 55,800 2,284,312
Sysco Corp...................................... 53,300 1,365,812
Whitman Corp.................................... 135,000 3,096,562
Wrigley (William) Jr. Co........................ 18,200 1,783,600
--------------
84,612,491
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 0.5%
Boise Cascade Corp.............................. 145,600 $ 4,768,400
Champion International Corp..................... 96,200 4,731,837
Fort James Corp................................. 32,700 1,455,150
Georgia-Pacific Corp............................ 14,500 854,594
International Paper Co.......................... 47,300 2,033,900
Louisiana-Pacific Corp.......................... 175,400 3,201,050
Mead Corp....................................... 96,500 3,063,875
Potlatch Corp................................... 4,500 189,000
Temple-Inland, Inc.............................. 8,900 479,487
Union Camp Corp................................. 10,900 540,912
Westvaco Corp................................... 16,000 452,000
Weyerhaeuser Co................................. 31,300 1,445,669
Willamette Industries, Inc...................... 70,300 2,249,600
--------------
25,465,474
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group........................... 13,000 723,125
Consolidated Natural Gas Co..................... 15,000 883,125
Peoples Energy Corp............................. 5,500 212,437
Sempra Energy (a)............................... 19,699 546,668
Sonat, Inc...................................... 17,200 664,350
Williams Companies, Inc......................... 64,400 2,173,500
--------------
5,203,205
--------------
HEALTHCARE -- 0.1%
Smith (A.O.) Corp............................... 71,500 3,695,656
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 0.3%
Columbia/HCA Healthcare Corp.................... 305,200 8,888,950
Healthsouth Corp. (a)........................... 61,600 1,643,950
Humana, Inc. (a)................................ 25,700 801,519
Manor Care, Inc................................. 10,000 384,375
Service Corp. International..................... 39,400 1,689,275
Shared Medical Systems Corp..................... 4,100 301,094
Tenet Healthcare Corp. (a)...................... 48,000 1,500,000
--------------
15,209,163
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co....................................... 16,200 1,545,075
Kimberly-Clark Corp............................. 87,000 3,991,125
Leggett & Platt, Inc............................ 116,600 2,915,000
--------------
8,451,200
--------------
HOUSING RELATED -- 0.4%
Armstrong World Industries, Inc................. 6,400 431,200
Fleetwood Enterprises, Inc...................... 5,700 228,000
Hanson, PLC, ADR, (United Kingdom).............. 305,362 9,256,286
Kaufman & Broad Home Corp....................... 6,100 193,675
Lowe's Companies, Inc........................... 54,800 2,222,825
Masco Corp...................................... 25,900 1,566,950
Maytag Corp..................................... 14,900 735,687
Owens Corning................................... 100,100 4,085,331
Stanley Works................................... 14,000 581,875
Tupperware Corp................................. 9,600 270,000
Whirlpool Corp.................................. 11,700 804,375
--------------
20,376,204
--------------
INSURANCE -- 1.6%
Aetna, Inc...................................... 23,300 1,773,712
Allstate Corp................................... 67,200 6,153,000
American General Corp........................... 39,700 2,826,144
American International Group, Inc............... 109,900 16,045,400
Aon Corp........................................ 26,300 1,847,575
Berkley (W.R.) Corp............................. 43,100 1,726,694
Chubb Corp...................................... 26,700 2,146,012
CIGNA Corp...................................... 34,800 2,401,200
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cincinnati Financial Corp....................... 25,800 $ 990,075
Conseco, Inc.................................... 29,500 1,379,125
Financial Security Assurance Holdings Ltd....... 34,600 2,032,750
General Re Corp................................. 12,300 3,118,050
Hartford Financial Services Group, Inc.......... 18,500 2,115,937
Jefferson-Pilot Corp............................ 16,600 961,762
Lincoln National Corp........................... 16,000 1,462,000
Loews Corp...................................... 47,500 4,138,437
Marsh & McLennan Companies, Inc................. 39,900 2,411,456
MBIA, Inc....................................... 15,300 1,145,587
MGIC Investment Corp............................ 17,900 1,021,419
PennCorp Financial Group, Inc................... 81,600 1,672,800
Progressive Corp................................ 11,300 1,593,300
Provident Companies, Inc........................ 54,300 1,873,350
Reinsurance Group of America, Inc............... 117,450 6,944,231
SAFECO Corp..................................... 22,100 1,004,169
St. Paul Companies, Inc......................... 36,200 1,522,662
TIG Holdings, Inc............................... 86,900 1,998,700
Torchmark Corp.................................. 21,900 1,001,925
Trenwick Group, Inc............................. 65,950 2,561,745
United Healthcare Corp.......................... 29,500 1,873,250
UNUM Corp....................................... 21,700 1,204,350
--------------
78,946,817
--------------
INTRUMENTS - CONTROLS
Flowserve Corp.................................. 40,186 989,580
Parker Hannifin Corp............................ 17,400 663,375
--------------
1,652,955
--------------
LEISURE -- 0.3%
Brunswick Corp.................................. 15,600 386,100
Disney (Walt) Co................................ 105,700 11,105,106
Harrah's Entertainment, Inc. (a)................ 15,800 367,350
King World Productions, Inc. (a)................ 11,500 293,250
Mirage Resorts, Inc. (a)........................ 28,100 598,881
--------------
12,750,687
--------------
LODGING
Hilton Hotels Corp.............................. 39,200 1,117,200
Marriott International, Inc. (Class "A"
Stock)........................................ 40,000 1,295,000
--------------
2,412,200
--------------
MACHINERY -- 0.4%
Briggs & Stratton Corp.......................... 3,900 146,006
Case Corp....................................... 100,200 4,834,650
Caterpillar, Inc................................ 58,300 3,082,612
Cincinnati Milacron, Inc........................ 6,300 153,169
Cooper Industries, Inc.......................... 19,000 1,043,812
Deere & Co...................................... 39,100 2,067,412
Dover Corp...................................... 34,800 1,191,900
DT Industries, Inc.............................. 36,400 882,700
Eaton Corp...................................... 11,200 870,800
Global Industrial Technologies, Inc. (a)........ 62,400 897,000
Harnischfeger Industries, Inc................... 7,500 212,344
Ingersoll-Rand Co............................... 25,900 1,141,219
McDermott International, Inc.................... 9,500 327,156
Paxar Corp...................................... 233,725 2,687,837
Snap-On, Inc.................................... 9,500 344,375
Timken Co....................................... 9,900 305,044
--------------
20,188,036
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MANUFACTURING -- 0.2%
Hussmann International, Inc..................... 67,500 $ 1,252,969
Illinois Tool Works, Inc........................ 39,100 2,607,481
Tyco International Ltd.......................... 89,600 5,644,800
--------------
9,505,250
--------------
MEDIA -- 1.3%
CBS Corp........................................ 307,200 9,753,600
Central Newspapers, Inc. (Class "A" Stock)...... 50,800 3,543,300
Clear Channel Communications, Inc. (a).......... 19,300 2,106,113
Comcast Corp. (Special Class "A" Stock)......... 54,700 2,220,478
Donnelley (R.R.) & Sons Co...................... 22,800 1,043,100
Dow Jones & Co., Inc............................ 15,100 841,825
Dun & Bradstreet Corp........................... 26,700 964,538
Eastman Kodak Co................................ 50,900 3,718,881
Gannett Co., Inc................................ 44,400 3,155,175
HBO & Co........................................ 66,000 2,326,500
Houghton Mifflin Co............................. 59,700 1,895,475
Interpublic Group of Companies, Inc............. 19,700 1,195,544
Knight Ridder, Inc.............................. 71,600 3,942,475
Lee Enterprises, Inc............................ 51,700 1,583,313
McGraw-Hill, Inc................................ 15,500 1,264,219
Mediaone Group, Inc............................. 95,100 4,178,456
Meredith Corp................................... 8,300 389,581
New York Times Co. (Class "A" Stock)............ 15,000 1,188,750
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 79,400 3,051,938
Time Warner, Inc................................ 90,600 7,740,638
Times Mirror Co. (Class "A" Stock).............. 13,900 873,963
Tribune Co...................................... 19,300 1,328,081
Viacom, Inc. (Class "B" Stock) (a).............. 55,300 3,221,225
--------------
61,527,168
--------------
METALS - FERROUS -- 0.2%
Allegheny Teledyne, Inc......................... 30,700 702,263
Armco, Inc. (a)................................. 16,900 107,738
Bethlehem Steel Corp.(a)........................ 225,200 2,800,925
Inland Steel Industries, Inc.................... 7,700 217,044
LTV Corp........................................ 208,300 1,991,869
Material Sciences Corp. (a)..................... 98,500 1,145,063
National Steel Corp. (Class "B" Stock) (a)...... 42,900 509,438
Nucor Corp...................................... 13,800 634,800
USX-U.S. Steel Group, Inc....................... 68,500 2,260,500
Worthington Industries, Inc..................... 15,200 228,950
--------------
10,598,590
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum Ltd.............................. 35,600 983,450
Aluminum Company of America..................... 186,900 12,323,719
Cyprus Amax Minerals Co......................... 14,600 193,450
Inco Ltd........................................ 26,200 356,975
Reynolds Metals Co.............................. 11,600 648,875
--------------
14,506,469
--------------
MINERAL RESOURCES
ASARCO, Inc..................................... 6,300 140,175
Burlington Resources, Inc....................... 27,600 1,188,525
Homestake Mining Co............................. 33,100 343,413
Phelps Dodge Corp............................... 9,200 526,125
--------------
2,198,238
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
Coltec Industries, Inc.......................... 44,400 $ 882,450
Crane Co........................................ 7,200 349,650
Donaldson Co., Inc.............................. 111,000 2,622,375
Ecolab, Inc..................................... 20,200 626,200
General Signal Corp............................. 6,800 244,800
IDEX Corp....................................... 61,100 2,107,950
ITT Industries, Inc............................. 18,500 691,438
Laidlaw, Inc.................................... 51,500 627,656
Mark IV Industries, Inc......................... 87,942 1,901,746
Millipore Corp.................................. 6,800 185,300
NACCO Industries, Inc. (Class "A" Stock)........ 1,300 168,025
Pall Corp....................................... 19,500 399,750
PPG Industries, Inc............................. 27,900 1,940,794
Textron, Inc.................................... 25,700 1,842,369
Thermo Electron Corp. (a)....................... 24,900 851,269
Trinity Industries, Inc......................... 53,100 2,203,650
Wolverine Tube, Inc. (a)........................ 37,600 1,428,800
York International Corp......................... 27,400 1,193,613
--------------
20,267,835
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.4%
American Greetings Corp. (Class "A" Stock)...... 11,400 580,688
Black & Decker Corp............................. 14,900 908,900
Corning, Inc.................................... 36,200 1,257,950
Eastman Kodak Co................................ 36,500 2,666,781
Jostens, Inc.................................... 6,100 147,163
Minnesota Mining & Manufacturing Co............. 64,000 5,260,000
Polaroid Corp................................... 7,000 248,938
Rubbermaid, Inc................................. 23,500 779,906
Unilever N.V., ADR, (United Kingdom)............ 100,300 7,917,431
--------------
19,767,757
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 26,700 1,016,269
--------------
OIL & GAS -- 2.2%
Amerada Hess Corp............................... 14,400 782,100
Amoco Corp...................................... 152,500 6,347,813
Anadarko Petroleum Corp......................... 9,400 631,563
Ashland, Inc.................................... 11,800 609,175
Atlantic Richfield Co........................... 50,200 3,921,875
Basin Exploration, Inc. (a)..................... 17,700 311,963
Cabot Oil & Gas Corp. (Class "A" Stock)......... 90,100 1,802,000
Chevron Corp.................................... 102,900 8,547,131
Coastal Corp.................................... 16,600 1,158,888
Eastern Enterprises............................. 3,200 137,200
Enron Oil & Gas Co.............................. 49,200 996,300
Exxon Corp...................................... 386,200 27,540,888
Kerr-McGee Corp................................. 7,500 434,063
Mobil Corp...................................... 122,800 9,409,550
Murphy Oil Corp................................. 28,100 1,424,319
NICOR, Inc...................................... 7,600 304,950
Noble Affiliates, Inc........................... 51,700 1,964,600
Pennzoil Co..................................... 7,400 374,625
Phillips Petroleum Co........................... 41,200 1,985,325
Pioneer Natural Resources Co.................... 340,244 8,123,326
Royal Dutch Petroleum Co........................ 335,800 18,406,038
Seagull Energy Corp. (a)........................ 63,700 1,055,031
Sun Co., Inc.................................... 14,800 574,425
Texaco, Inc..................................... 85,800 5,121,188
Union Pacific Resources Group, Inc.............. 39,800 698,988
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Unocal Corp..................................... 38,600 $ 1,379,950
USX-Marathon Group.............................. 45,200 1,550,925
Western Gas Resources, Inc...................... 104,700 1,531,238
--------------
107,125,437
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.3%
Elf Aquitaine SA, ADR, (France)................. 126,900 9,009,900
Occidental Petroleum Corp....................... 53,100 1,433,700
Oryx Energy Co. (a)............................. 142,100 3,143,963
--------------
13,587,563
--------------
OIL & GAS SERVICES -- 0.6%
Apache Corp..................................... 15,000 472,500
Baker Hughes, Inc............................... 26,500 915,906
Dresser Industries, Inc......................... 27,500 1,211,719
Enron Corp...................................... 51,400 2,778,813
Halliburton Co.................................. 41,000 1,827,063
Helmerich & Payne, Inc.......................... 7,900 175,775
J. Ray McDermott, SA (a)........................ 166,500 6,909,750
McDermott International, Inc.................... 299,200 10,303,700
ONEOK, Inc...................................... 4,900 195,388
Rowan Companies, Inc. (a)....................... 13,600 264,350
Schlumberger Ltd................................ 78,000 5,328,375
Western Atlas, Inc. (a)......................... 8,500 721,438
--------------
31,104,777
--------------
PAPER PRODUCTS -- 0.1%
Boise Cascade Corp.............................. 8,800 288,200
Champion International Corp. Co................. 15,100 742,731
Louisiana-Pacific Corp.......................... 17,200 313,900
Mead Corp....................................... 16,400 520,700
Willamette Industries........................... 17,400 556,800
--------------
2,422,331
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 83,600 809,875
Barrick Gold Corp............................... 58,500 1,122,469
Battle Mountain Gold Co......................... 36,000 213,750
Freeport-McMoRan Copper & Gold, Inc............. 30,300 460,181
Newmont Mining Corp............................. 24,500 578,813
Placer Dome, Inc................................ 38,700 454,725
--------------
3,639,813
--------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe Corp............... 24,500 2,405,594
CSX Corp........................................ 34,200 1,556,100
Norfolk Southern Corp........................... 59,100 1,761,919
Union Pacific Corp.............................. 38,700 1,707,638
--------------
7,431,251
--------------
REAL ESTATE DEVELOPMENT -- 0.3%
Crescent Operating, Inc. (a).................... 17,360 295,120
Crescent Real Estate Equities Co................ 271,300 9,122,463
Equity Residential Properties Trust............. 14,600 692,588
Vornado Realty Trust............................ 94,300 3,742,531
--------------
13,852,702
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc......................... 1,200 19,050
McDonald's Corp................................. 107,900 7,445,100
Tricon Global Restaurants, Inc. (a)............. 23,800 754,163
Wendy's International, Inc...................... 20,700 486,450
--------------
8,704,763
--------------
RETAIL -- 2.2%
Albertson's, Inc................................ 38,500 1,994,781
American Stores Co.............................. 42,800 1,035,225
AutoZone, Inc. (a).............................. 23,800 760,113
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Bombay Company, Inc. (a)........................ 141,500 $ 672,125
Charming Shoppes, Inc. (a)...................... 824,800 3,917,800
Circuit City Stores, Inc........................ 15,500 726,563
Consolidated Stores Corp. (a)................... 16,900 612,625
Costco Companies, Inc. (a)...................... 33,600 2,118,900
CVS Corp........................................ 59,800 2,328,463
Dayton-Hudson Corp.............................. 68,500 3,322,250
Designs, Inc. (a)............................... 52,800 82,500
Dillard's, Inc.................................. 49,600 2,055,301
Federated Department Stores, Inc. (a)........... 32,900 1,770,431
Fruit of the Loom, Inc. (a)..................... 11,500 381,656
Great Atlantic & Pacific Tea Co., Inc........... 6,000 198,375
Harcourt General, Inc........................... 11,100 660,450
Home Depot, Inc................................. 114,550 9,514,809
IKON Office Solutions, Inc...................... 21,100 307,269
Jan Bell Marketing, Inc. (a).................... 153,800 999,700
Kmart Corp. (a)................................. 696,000 13,398,000
Kroger Co. (a).................................. 39,923 1,711,699
Liz Claiborne, Inc.............................. 10,500 548,625
Longs Drug Stores, Inc.......................... 6,100 176,138
May Department Stores Co........................ 36,200 2,371,100
Mercantile Stores Co., Inc...................... 5,600 442,050
Newell Co....................................... 24,900 1,240,331
Nordstrom, Inc.................................. 12,100 934,725
Penney (J.C.) Co., Inc.......................... 39,100 2,827,419
Pep Boys - Manny, Moe & Jack.................... 9,900 187,481
Rite Aid Corp................................... 40,400 1,517,525
Sears, Roebuck & Co............................. 61,400 3,749,238
Sherwin-Williams Co............................. 27,100 897,688
Supervalu, Inc.................................. 9,400 417,125
Tandy Corp...................................... 16,200 859,613
The Gap, Inc.................................... 62,000 3,820,750
The Limited, Inc................................ 250,600 8,301,126
TJX Companies, Inc.............................. 50,600 1,220,725
Toys 'R' Us, Inc. (a)........................... 133,200 3,138,525
Venator Group, Inc. (a)......................... 21,100 403,538
Wal-Mart Stores, Inc............................ 351,700 21,365,775
Walgreen Co..................................... 77,600 3,205,850
Winn-Dixie Stores, Inc.......................... 23,300 1,192,669
--------------
107,387,051
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 12,300 253,688
Goodyear Tire & Rubber Co....................... 24,500 1,578,719
Goodyear Tire & Rubber Co....................... 39,800 2,564,613
--------------
4,397,020
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 25,700 338,919
--------------
STEEL
AK Steel Holding Corp........................... 47,300 845,488
Bethlehem Steel Corp. (a)....................... 20,000 248,750
USX U.S. Steel Group Inc........................ 13,500 445,500
--------------
1,539,738
--------------
TELECOMMUNICATIONS -- 2.7%
Airtouch Communications, Inc. (a)............... 88,400 5,165,875
Alcatel Alsthom, ADR, (France).................. 127,000 5,167,313
Alltel Corp..................................... 28,800 1,339,200
Ameritech Corp.................................. 171,400 7,691,575
Andrew Corp. (a)................................ 13,900 251,069
Ascend Communications, Inc. (a)................. 30,200 1,496,788
AT&T Corp....................................... 254,400 14,532,600
Bell Atlantic Corp.............................. 243,200 11,096,000
BellSouth Corp.................................. 155,300 10,424,513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Deutsche Telekom AG, ADR, (Germany)............. 45,800 $ 1,259,500
DSC Communications Corp.(a)..................... 18,500 555,000
Frontier Corp................................... 25,700 809,550
General Instrument Corp. (a).................... 23,200 630,750
GTE Corp........................................ 150,000 8,343,750
Lucent Technologies, Inc........................ 203,800 16,953,613
MCI Communications Corp......................... 109,100 6,341,438
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 41,100 1,022,363
Northern Telecom Ltd............................ 81,500 4,625,125
SBC Communications, Inc......................... 287,100 11,484,000
Scientific-Atlanta, Inc......................... 12,400 314,650
Sprint Corp..................................... 67,300 4,744,650
Telecomunicacoes Brasileiras, S.A., ADR,
(Brazil)...................................... 42,000 4,585,875
Tellabs, Inc. (a)............................... 28,400 2,034,150
US West, Inc.................................... 77,860 3,659,430
WorldCom, Inc. (a).............................. 158,600 7,682,188
--------------
132,210,965
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 6,700 340,863
Pillowtex Corp.................................. 18,830 755,554
Russell Corp.................................... 5,700 172,069
Springs Industries, Inc......................... 3,200 147,600
Tultex Corp. (a)(b)............................. 89,800 218,888
VF Corp......................................... 19,100 983,650
--------------
2,618,624
--------------
TOBACCO -- 0.6%
B.A.T. Industries, PLC, ADR, (United Kingdom)... 107,100 2,162,081
Philip Morris Co., Inc.......................... 452,100 17,801,438
RJR Nabisco Holdings Corp....................... 260,800 6,194,000
UST, Inc........................................ 28,900 780,300
--------------
26,937,819
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 20,800 817,700
Mattel, Inc..................................... 45,551 1,927,377
--------------
2,745,077
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 23,000 1,443,250
Ryder System, Inc............................... 12,000 378,750
Yellow Corp. (b)................................ 44,300 822,319
--------------
2,644,319
--------------
UTILITY - ELECTRIC -- 0.7%
Ameren Corp..................................... 21,500 854,625
American Electric Power Co., Inc................ 29,700 1,347,638
Baltimore Gas & Electric Co..................... 23,100 717,544
Carolina Power & Light Co....................... 23,500 1,019,313
Central & South West Corp....................... 33,200 892,250
CINergy Corp.................................... 24,700 864,500
Consolidated Edison, Inc........................ 36,800 1,695,100
Dominion Resources, Inc......................... 30,300 1,234,725
DTE Energy Co................................... 22,700 916,513
Duke Energy Corp................................ 56,400 3,341,700
Edison International............................ 59,700 1,764,881
Entergy Corp.................................... 38,200 1,098,250
FirstEnergy Corp. (a)........................... 36,100 1,110,075
FPL Group, Inc.................................. 28,500 1,795,500
GPU, Inc........................................ 19,900 752,469
Houston Industries, Inc......................... 44,300 1,367,763
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Niagara Mohawk Power Corp. (a).................. 22,600 $ 337,588
Northern States Power Co........................ 23,300 666,963
Pacific Gas & Electric Co....................... 59,700 1,884,281
PacifiCorp...................................... 46,400 1,049,800
PECO Energy Co.................................. 34,900 1,018,644
PP&L Resources, Inc............................. 26,000 589,875
Public Service Enterprise Group, Inc............ 36,300 1,250,081
Southern Co..................................... 108,100 2,993,019
Texas Utilities Co.............................. 38,600 1,606,725
Unicom Corp..................................... 33,900 1,188,619
--------------
33,358,441
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc........................... 188,900 6,611,500
--------------
TOTAL COMMON STOCKS
(cost $1,562,658,362).................................................... 1,767,322,183
--------------
PREFERRED STOCKS -- 0.7%
FINANCIAL SERVICES
Central Hispano Capital Corp.,
(cost $31,236,595).............................. 1,225,900 31,803,437
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,343,179,926).................................................... 4,591,745,342
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 4.9% RATING (000)
------------ ---------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.1%
Restructured Asset Securities Enhanced
Return, 5.623%, 08/28/98 (b).................. NR $ 4,000 4,000,000
Strategic Money Market Trust 1997-A,
5.906%, 12/16/98 (b).......................... NR 2,000 2,000,000
--------------
6,000,000
--------------
BANK NOTES -- 0.1%
American Express Centurion
Bank, 5.616%, 07/22/98 (b).................... NR 5,000 5,000,000
US-Bank, N.A.,
5.526%, 7/21/98 (b)........................... NR 1,000 999,754
--------------
5,999,754
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.2%
Barclays American Corp.,
5.521%, 07/02/98 (b).......................... P3 3,000 2,997,817
Dresdner U.S. Finance,
5.95%, 10/20/98............................... P3 7,000 6,999,329
Westdeutsche Landesbank Girozentrale,
5.83%, 08/03/98............................... P1 2,000 1,999,869
--------------
11,997,015
--------------
COMMERCIAL PAPER -- 1.7%
AT&T Capital Corp., M.T.N.,
6.65%, 04/30/99............................... Baa3 32,000 32,140,800
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 3,500 3,501,120
Bank of Boston N.A.,
5.848%, 01/25/99.............................. A2 2,500 2,503,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Baxter International,
5.95%, 07/07/98............................... P2 $ 3,300 $ 3,296,727
BBL North America,
5.53%, 08/25/98............................... NR 1,300 1,289,017
6.66%, 08/17/98............................... Baa3 5,050 5,053,131
Centric Capital Corp.,
5.55%, 09/29/98............................... NR 1,000 986,125
Du Pont (E.I.) de Nemours &
Co., 5.54%, 08/10/98.......................... P3 3,300 3,279,687
Enterprise Funding Corp,
5.55%, 08/11/98............................... NR 4,046 4,020,426
First Data Corp.,
5.52%, 09/15/98............................... NR 4,658 4,603,719
First Union Corp,
9.45%, 06/15/99............................... A3 4,000 4,125,200
Fortune Brands,
5.53%, 07/14/98............................... NR 447 446,107
General Electric Capital
Corp., 5.53%, 09/03/98........................ NR 3,500 3,465,591
General Motors Acceptance
Corp., 5.875%, 11/06/98 (b)................... P1 1,000 1,000,438
Old Line Funding Corp.,
5.70%, 08/04/98............................... NR 3,222 3,204,655
Societe Generale,
5.555%, 09/11/98.............................. P1 3,000 2,999,744
Medium Term Notes --
6.29%, 10/22/98............................... Baa1 5,000 5,004,450
--------------
80,920,862
--------------
OTHER CORPORATE OBLIGATIONS -- 0.7%
Abbey National Treasury Services PLC, (United
Kingdom)
5.50%, 02/05/99............................... P1 7,000 6,996,741
5.625%, 03/08/99.............................. Aa2 5,500 5,497,800
General Motors Acceptance
Corp., 5.60%, 09/21/98........................ P1 3,000 2,999,237
Kansallis-Osake-Pankki, (Finland),
9.75%, 12/15/98 (a).......................... Baa1 16,950 17,217,301
Province of Quebec, (Canada),
5.988%, 06/15/99.............................. A2 3,000 2,999,812
--------------
35,710,891
--------------
TIME DEPOSIT -- 0.1%
Deutsche Bank,
6.25%, 07/01/98............................... P3 3,300 3,300,000
--------------
U. S. GOVERNMENT OBLIGATION
United States Treasury Bill,
5.05%, 09/17/98............................... 1,400 1,384,682
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS (CONT'D) (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.0%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)..................... $ 95,049 $ 95,049,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $240,188,499)...................................................... 240,362,204
--------------
TOTAL INVESTMENTS -- 99.3%
(cost $4,583,368,425; Note 6)............................................ 4,832,107,546
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (D).............................
117,141
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%..............................
36,004,010
--------------
NET ASSETS -- 100.0%....................................................... $4,868,228,697
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
PLC Public Limited Company (British Corporation)
(a) Non-income producing security
(b) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 1998.
(c) Security segregated as collateral for futures contracts.
(d) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<S> <C> <C> <C> <C> <C> <C>
Long Positions:
501 U.S. Treasury 5 yr. Sep 98 $ 54,792,961 $ 54,953,438 $ 160,477
166 U.S. T-Bond Sep 98 $ 20,154,734 $ 20,516,562 $ 360,176
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 94.5%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS -- 51.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.9%
Aeroquip-Vickers, Inc........................... 4,700 $ 274,362
AlliedSignal, Inc............................... 95,000 4,215,625
Boeing Co....................................... 168,400 7,504,325
GenCorp, Inc.................................... 403,900 10,198,475
General Dynamics Corp........................... 21,200 985,800
Goodrich (B.F.) Co.............................. 12,100 600,462
Litton Industries, Inc.......................... 306,000 18,054,000
Lockheed Martin Corp............................ 32,700 3,462,112
Northrop Grumman Corp........................... 11,200 1,155,000
Raytheon Co. (Class "B" Stock).................. 57,100 3,376,037
United Technologies Corp........................ 39,200 3,626,000
--------------
53,452,198
--------------
AIRLINES -- 1.6%
AMR Corp. (a)................................... 647,500 53,904,375
Delta Air Lines, Inc............................ 12,600 1,628,550
Southwest Airlines Co........................... 37,200 1,102,050
US Airways Group, Inc. (a)...................... 479,200 37,976,600
--------------
94,611,575
--------------
APPAREL -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 310,800 10,314,675
Nike, Inc. (Class 'B' Stock).................... 49,000 2,385,687
Reebok International Ltd. (a)................... 9,500 263,031
--------------
12,963,393
--------------
AUTOS - CARS & TRUCKS -- 2.3%
Chrysler Corp................................... 706,000 39,800,750
Cummins Engine Co., Inc......................... 6,400 328,000
Dana Corp....................................... 17,700 946,950
Echlin, Inc..................................... 10,600 520,062
Ford Motor Co................................... 486,300 28,691,700
General Motors Corp............................. 566,600 37,855,963
Genuine Parts Co................................ 30,100 1,040,331
Johnson Controls, Inc........................... 14,200 812,062
MascoTech, Inc.................................. 388,000 9,312,000
Midas, Inc...................................... 90,866 1,828,678
Navistar International Corp. (a)................ 12,200 352,275
PACCAR, Inc..................................... 13,100 684,475
Titan International, Inc........................ 415,700 7,066,900
TRW, Inc........................................ 20,700 1,130,737
--------------
130,370,883
--------------
BANKS AND SAVINGS & LOANS -- 2.2%
Ahmanson (H.F.) & Co............................ 18,400 1,306,400
Banc One Corp................................... 118,200 6,597,037
Bank of New York Co., Inc....................... 63,400 3,847,587
BankAmerica Corp................................ 116,800 10,095,900
BankBoston Corp................................. 49,000 2,725,625
Bankers Trust Corp.............................. 16,500 1,915,031
BB&T Corp....................................... 24,000 1,623,000
Chase Manhattan Corp............................ 142,000 10,721,000
Citicorp........................................ 77,000 11,492,250
Comerica, Inc................................... 26,500 1,755,625
First Chicago NBD Corp.......................... 49,000 4,342,625
First Union Corp................................ 162,900 9,488,925
Fleet Financial Group, Inc...................... 45,900 3,832,650
Golden West Financial Corp...................... 9,600 1,020,600
Huntington Bancshares, Inc...................... 32,200 1,078,700
KeyCorp......................................... 74,000 2,636,250
Mellon Bank Corp................................ 42,900 2,986,912
Mercantile Bancorporation, Inc.................. 22,100 1,113,287
Morgan (J.P.) & Co., Inc........................ 29,900 3,502,037
National City Corp.............................. 55,300 3,926,300
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
NationsBank Corp................................ 158,368 12,115,152
Northern Trust Corp............................. 18,800 $ 1,433,500
Norwest Corp.................................... 127,200 4,754,100
PNC Bank Corp................................... 51,400 2,765,962
Providian Financial Corp........................ 16,000 1,257,000
Republic New York Corp.......................... 18,400 1,158,050
Summit Bancorp.................................. 29,600 1,406,000
Suntrust Banks, Inc............................. 35,500 2,886,594
Synovus Financial Corp.......................... 44,200 1,049,750
U.S. Bancorp.................................... 124,000 5,332,000
Wachovia Corp................................... 34,700 2,932,150
Wells Fargo & Co................................ 14,600 5,387,400
--------------
128,485,399
--------------
BUSINESS SERVICES
Equifax, Inc.................................... 25,300 918,706
Omnicom Group, Inc.............................. 27,300 1,361,587
--------------
2,280,293
--------------
CHEMICALS -- 1.3%
Air Products & Chemicals, Inc................... 39,600 1,584,000
Dow Chemical Co................................. 38,200 3,693,462
Du Pont (E.I.) de Nemours & Co.................. 190,600 14,223,525
Eastman Chemical Co............................. 13,200 821,700
Ferro Corp...................................... 553,650 14,014,266
FMC Corp. (a)................................... 5,800 395,487
Hercules, Inc................................... 16,300 670,337
Millennium Chemicals, Inc....................... 601,600 20,379,200
Monsanto Co..................................... 99,900 5,581,912
Nalco Chemical Co............................... 11,200 393,400
OM Group, Inc................................... 260,300 10,737,375
Rohm & Haas Co.................................. 10,300 1,070,556
Sigma-Aldrich Corp.............................. 16,900 593,612
Union Carbide Corp.............................. 20,800 1,110,200
--------------
75,269,032
--------------
CHEMICAL - SPECIALTY -- 0.1%
Engelhard Corp.................................. 24,300 492,075
Grace (W.R.) & Co............................... 12,500 213,281
Great Lakes Chemical Corp....................... 10,100 398,319
Morton International, Inc....................... 22,000 550,000
Praxair, Inc.................................... 26,600 1,245,212
Raychem Corp.................................... 14,300 422,744
--------------
3,321,631
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (a)............................... 136,500 2,849,437
Deluxe Corp..................................... 13,700 490,631
Moore Corp., Ltd................................ 14,900 197,425
--------------
3,537,493
--------------
COMPUTER SERVICES -- 1.5%
3Com Corp. (a).................................. 59,700 1,832,044
Adobe Systems, Inc.............................. 11,600 492,275
Autodesk, Inc................................... 7,900 305,137
Automatic Data Processing, Inc.................. 50,400 3,672,900
Bay Networks, Inc. (a).......................... 37,000 1,193,250
Cabletron Systems, Inc. (a)..................... 26,600 357,437
Ceridian Corp. (a).............................. 12,200 716,750
Cisco Systems, Inc. (a)......................... 171,400 15,779,512
Computer Associates International, Inc.......... 92,000 5,111,750
Computer Sciences Corp. (a)..................... 26,300 1,683,200
EMC Corp. (a)................................... 83,500 3,741,844
First Data Corp................................. 72,100 2,401,831
Microsoft Corp. (a)............................. 410,100 44,444,587
Novell, Inc. (a)................................ 59,100 753,525
Oracle Corp. (a)................................ 165,700 4,070,006
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Parametric Technology Corp. (a)................. 43,200 $ 1,171,800
Silicon Graphics, Inc. (a)...................... 31,600 383,150
--------------
88,110,998
--------------
COMPUTERS -- 0.9%
Apple Computer, Inc. (a)........................ 22,400 642,600
Compaq Computer Corp............................ 278,362 7,898,508
Data General Corp. (a).......................... 8,200 122,487
Dell Computer Corp. (a)......................... 110,000 10,209,375
Gateway 2000, Inc. (a).......................... 26,100 1,321,312
Hewlett-Packard Co.............................. 175,200 10,490,100
International Business Machines Corp............ 163,800 18,806,287
Seagate Technology, Inc. (a).................... 40,800 971,550
Sun Microsystems, Inc. (a)...................... 63,600 2,762,625
--------------
53,224,844
--------------
CONSTRUCTION -- 0.8%
Centex Corp..................................... 10,000 377,500
Fluor Corp...................................... 14,100 719,100
Foster Wheeler Corp............................. 6,900 147,919
Oakwood Homes Corp.............................. 572,000 17,160,000
Pulte Corp...................................... 7,200 215,100
Standard Pacific Corp........................... 632,400 13,043,250
Webb (Del E.) Corp.............................. 576,500 14,952,969
--------------
46,615,838
--------------
CONTAINERS -- 0.3%
Ball Corp....................................... 5,100 204,956
Bemis Co., Inc.................................. 8,900 363,787
Crown Cork & Seal Co., Inc...................... 21,600 1,026,000
Owens-Illinois, Inc. (a)........................ 261,800 11,715,550
Sealed Air Corp. (a)............................ 13,900 510,825
Stone Container Corp. (a)....................... 16,700 260,937
--------------
14,082,055
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)............ 9,600 278,400
Avon Products, Inc.............................. 22,200 1,720,500
Colgate-Palmolive Co............................ 49,800 4,382,400
Gillette Co..................................... 188,700 10,696,931
International Flavors & Fragrances, Inc......... 18,400 799,250
Procter & Gamble Co............................. 226,100 20,589,231
--------------
38,466,712
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
Loews Corp...................................... 184,500 16,074,562
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp............................. 17,300 929,875
Pitney Bowes, Inc............................... 46,100 2,218,562
Unisys Corp. (a)................................ 42,000 1,186,500
Xerox Corp...................................... 54,900 5,579,212
--------------
9,914,149
--------------
DIVERSIFIED OPERATIONS -- 0.9%
Cognizant Corp.................................. 27,300 1,719,900
Fortune Brands, Inc............................. 28,900 1,110,844
General Electric Capital Corp................... 551,300 50,168,300
--------------
52,999,044
--------------
DRUGS AND MEDICAL SUPPLIES -- 2.9%
Abbott Laboratories............................. 257,700 10,533,487
Allergan, Inc................................... 11,000 510,125
ALZA Corp. (a).................................. 14,400 622,800
American Home Products Corp..................... 218,900 11,328,075
Amgen, Inc. (a)................................. 44,300 2,896,112
Bard (C.R.), Inc................................ 9,600 365,400
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Bausch & Lomb, Inc.............................. 9,300 $ 466,162
Baxter International, Inc....................... 47,200 2,539,950
Becton, Dickinson & Co.......................... 20,600 1,599,075
Biomet, Inc..................................... 18,800 621,575
Boston Scientific Corp. (a)..................... 32,800 2,349,300
Bristol-Myers Squibb Co......................... 167,500 19,252,031
Cardinal Health, Inc............................ 18,500 1,734,375
Guidant Corp.................................... 25,400 1,811,337
Johnson & Johnson............................... 226,500 16,704,375
Lilly (Eli) & Co................................ 186,900 12,347,081
Mallinckrodt, Inc............................... 12,300 365,156
Medtronic, Inc.................................. 78,900 5,029,875
Merck & Co., Inc................................ 201,800 26,990,750
Pfizer, Inc..................................... 217,800 23,672,137
Pharmacia & Upjohn, Inc......................... 85,500 3,943,687
Schering-Plough Corp............................ 123,300 11,297,362
St. Jude Medical, Inc. (a)...................... 15,500 570,594
United States Surgical Corp..................... 12,800 584,000
Warner-Lambert Co............................... 137,600 9,546,000
--------------
167,680,821
--------------
ELECTRONICS -- 0.9%
Advanced Micro Devices, Inc. (a)................ 23,900 407,794
AMP Inc......................................... 37,100 1,275,312
Applied Materials, Inc. (a)..................... 61,700 1,820,150
Belden, Inc..................................... 275,600 8,440,250
EG&G, Inc....................................... 7,600 228,000
Emerson Electric Co............................. 74,700 4,510,012
Grainger (W.W.), Inc............................ 16,700 831,869
Harris Corp..................................... 13,500 603,281
Honeywell, Inc.................................. 21,400 1,788,237
Intel Corp...................................... 275,600 20,428,850
KLA-Tencor Corp. (a)............................ 14,200 393,162
LSI Logic Corp. (a)............................. 23,900 551,194
Micron Technology, Inc. (a)..................... 35,600 883,325
Motorola, Inc................................... 100,600 5,287,787
Perkin-Elmer Corp............................... 8,200 509,937
Rockwell International Corp..................... 33,800 1,624,512
Tektronix, Inc.................................. 8,500 300,687
Texas Instruments, Inc.......................... 65,700 3,831,131
Thomas & Betts Corp............................. 9,300 458,025
--------------
54,173,515
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 244,900 7,010,262
--------------
ENVIRONMENTAL SERVICES -- 0.4%
Browning-Ferris Industries, Inc................. 31,000 1,077,250
Waste Management, Inc........................... 540,500 18,917,500
--------------
19,994,750
--------------
FINANCIAL SERVICES -- 3.4%
American Express Co............................. 78,300 8,926,200
Associates First Capital Corp................... 132,879 10,215,073
Beneficial Corp................................. 8,900 1,363,369
Block (H.R.), Inc............................... 17,700 745,612
Countrywide Credit Industries, Inc.............. 18,300 928,725
Federal Home Loan Mortgage Corp................. 117,100 5,511,019
Federal National Mortgage Association........... 178,700 10,856,025
Fifth Third Bancorp............................. 39,200 2,469,600
Franklin Resource, Inc.......................... 42,600 2,300,400
Green Tree Financial Corp....................... 22,900 980,406
Household International, Inc.................... 54,100 2,691,475
Lehman Brothers Holdings, Inc................... 722,900 56,069,931
MBNA Corp....................................... 84,400 2,785,200
Merrill Lynch & Co., Inc........................ 294,900 27,204,525
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Morgan Stanley Dean Witter & Co................. 321,495 $ 29,376,606
Schwab (Charles) Corp........................... 44,700 1,452,750
State Street Corp............................... 27,100 1,883,450
Sunamerica, Inc................................. 32,900 1,889,694
Transamerica Corp............................... 10,600 1,220,325
Travelers Group, Inc............................ 408,651 24,774,467
Washington Mutual, Inc.......................... 65,000 2,823,437
--------------
196,468,289
--------------
FOOD & BEVERAGES -- 2.2%
Anheuser-Busch Companies, Inc................... 82,500 3,892,969
Archer-Daniels-Midland Co....................... 96,300 1,865,812
Bestfoods....................................... 48,500 2,816,031
Brown-Forman Corp. (Class "B" Stock)............ 11,600 745,300
Campbell Soup Co................................ 76,900 4,085,312
Coca-Cola Co.................................... 416,600 35,619,300
ConAgra, Inc.................................... 80,100 2,538,169
Coors (Adolph) Co. (Class "B" Stock)............ 6,200 210,800
General Mills, Inc.............................. 26,700 1,825,612
Giant Food, Inc. (Class "A" Stock).............. 10,100 434,931
Heinz (H.J.) & Co............................... 61,600 3,457,300
Hershey Foods Corp.............................. 24,100 1,662,900
Kellogg Co...................................... 69,200 2,599,325
PepsiCo, Inc.................................... 255,500 10,523,406
Pioneer Hi-Bred International, Inc.............. 41,100 1,700,512
Quaker Oats Co.................................. 23,300 1,280,044
Ralston-Ralston Purina Group.................... 18,000 2,102,625
RJR Nabisco Holdings Corp....................... 1,078,200 25,607,250
Sara Lee Corp................................... 79,700 4,458,219
Seagram Co., Ltd................................ 60,000 2,456,250
Sysco Corp...................................... 57,300 1,468,312
Whitman Corp.................................... 545,200 12,505,525
Wrigley (William) Jr. Co........................ 19,500 1,911,000
--------------
125,766,904
--------------
FOREST PRODUCTS -- 1.5%
Boise Cascade Corp.............................. 669,800 21,935,950
Champion International Corp..................... 405,000 19,920,937
Fort James Corp................................. 35,200 1,566,400
Georgia-Pacific Corp............................ 15,600 919,425
International Paper Co.......................... 50,900 2,188,700
Louisiana-Pacific Corp.......................... 707,300 12,908,225
Mead Corp....................................... 407,500 12,938,125
Potlatch Corp................................... 4,900 205,800
Temple-Inland, Inc.............................. 9,500 511,812
Union Camp Corp................................. 11,700 580,612
Westvaco Corp................................... 17,200 485,900
Weyerhaeuser Co................................. 33,600 1,551,900
Willamette Industries, Inc...................... 303,200 9,702,400
--------------
85,416,186
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group........................... 14,000 778,750
Consolidated Natural Gas Co..................... 16,100 947,887
Peoples Energy Corp............................. 5,900 227,887
Sempra Energy (a)............................... 21,053 584,226
Sonat, Inc...................................... 18,500 714,562
Williams Companies, Inc......................... 69,200 2,335,500
--------------
5,588,812
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.................... 915,600 26,666,850
Healthsouth Corp. (a)........................... 66,300 1,769,381
Humana, Inc. (a)................................ 27,600 860,775
Manor Care, Inc................................. 10,700 411,281
Service Corp. International..................... 42,400 1,817,900
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Shared Medical Systems Corp..................... 4,400 $ 323,125
Tenet Healthcare Corp. (a)...................... 51,600 1,612,500
--------------
33,461,812
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.3%
Clorox Co....................................... 17,400 1,659,525
Kimberly-Clark Corp............................. 93,600 4,293,900
Leggett & Platt, Inc............................ 470,800 11,770,000
--------------
17,723,425
--------------
HOUSING RELATED -- 1.0%
Armstrong World Industries, Inc................. 6,800 458,150
Fleetwood Enterprises, Inc...................... 6,100 244,000
Hanson, PLC, ADR, (United Kingdom).............. 1,184,500 35,905,156
Kaufman & Broad Home Corp....................... 6,600 209,550
Lowe's Companies, Inc........................... 59,000 2,393,187
Masco Corp...................................... 27,800 1,681,900
Maytag Corp..................................... 16,000 790,000
Owens Corning................................... 413,700 16,884,131
Stanley Works................................... 15,000 623,437
Tupperware Corp................................. 10,300 289,687
Whirlpool Corp.................................. 12,600 866,250
--------------
60,345,448
--------------
INSURANCE -- 2.4%
Aetna, Inc...................................... 25,000 1,903,125
Allstate Corp................................... 72,200 6,610,812
American General Corp........................... 42,700 3,039,706
American International Group, Inc............... 118,200 17,257,200
Aon Corp........................................ 28,200 1,981,050
Berkley (W.R.) Corp............................. 175,850 7,044,991
Chubb Corp...................................... 28,700 2,306,762
CIGNA Corp...................................... 37,400 2,580,600
Cincinnati Financial Corp....................... 27,700 1,062,987
Conseco, Inc.................................... 31,700 1,481,975
Financial Security Assurance Holdings Ltd....... 140,100 8,230,875
General Re Corp................................. 13,200 3,346,200
Hartford Financial Services Group, Inc.......... 19,900 2,276,063
Jefferson-Pilot Corp............................ 17,900 1,037,081
Lincoln National Corp........................... 17,200 1,571,650
Marsh & McLennan Companies, Inc................. 42,900 2,592,769
MBIA, Inc....................................... 16,500 1,235,438
MGIC Investment Corp............................ 19,200 1,095,600
PennCorp Financial Group, Inc................... 329,800 6,760,900
Progressive Corp................................ 12,200 1,720,200
Provident Companies, Inc........................ 219,400 7,569,300
Reinsurance Group of America, Inc............... 474,600 28,060,725
SAFECO Corp..................................... 23,800 1,081,413
St. Paul Companies, Inc......................... 38,900 1,636,231
TIG Holdings, Inc............................... 351,200 8,077,600
Torchmark Corp.................................. 23,600 1,079,700
Trenwick Group, Inc............................. 273,300 10,615,997
United Healthcare Corp.......................... 31,700 2,012,950
UNUM Corp....................................... 23,400 1,298,700
--------------
136,568,600
--------------
INSTRUMENTS - CONTROLS -- 0.2%
Flowserve Corp.................................. 161,991 3,989,028
Parker-Hannifin Corp............................ 195,600 7,457,250
--------------
11,446,278
--------------
LEISURE -- 0.2%
Brunswick Corp.................................. 16,800 415,800
Disney (Walt) Co................................ 113,700 11,945,606
Harrah's Entertainment, Inc. (a)................ 17,000 395,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
King World Productions, Inc. (a)................ 12,400 $ 316,200
Mirage Resorts, Inc. (a)........................ 30,200 643,638
--------------
13,716,494
--------------
LODGING -- 0.1%
Hilton Hotels Corp.............................. 42,200 1,202,700
Marriott International, Inc. (Class "A"
Stock)........................................ 43,000 1,392,125
--------------
2,594,825
--------------
MACHINERY -- 0.8%
Briggs & Stratton Corp.......................... 4,200 157,238
Case Corp....................................... 369,700 17,838,025
Caterpillar, Inc................................ 62,700 3,315,263
Cincinnati Milacron, Inc........................ 6,700 162,894
Cooper Industries, Inc.......................... 20,400 1,120,725
Deere & Co...................................... 42,100 2,226,038
Dover Corp...................................... 37,500 1,284,375
DT Industries, Inc.............................. 146,800 3,559,900
Eaton Corp...................................... 12,100 940,775
Global Industrial Technologies, Inc. (a)........ 258,100 3,710,188
Harnischfeger Industries, Inc................... 8,100 229,331
Ingersoll-Rand Co............................... 27,900 1,229,344
Paxar Corp...................................... 954,575 10,977,613
Snap-On, Inc.................................... 10,300 373,375
Timken Co....................................... 10,600 326,613
--------------
47,451,697
--------------
MANUFACTURING -- 0.5%
Hussmann International, Inc..................... 272,600 5,060,138
Illinois Tool Works, Inc........................ 42,000 2,800,875
Smith (A.O.) Corp............................... 288,900 14,932,519
Tyco International Ltd.......................... 96,402 6,073,326
--------------
28,866,858
--------------
MEDIA -- 1.9%
CBS Corp........................................ 914,500 29,035,375
Central Newspapers, Inc. (Class "A" Stock)...... 205,300 14,319,675
Clear Channel Communications, Inc. (a).......... 20,800 2,269,800
Comcast Corp. (Special Class "A" Stock)......... 58,800 2,386,913
Donnelley (R.R.) & Sons Co...................... 24,600 1,125,450
Dow Jones & Co., Inc............................ 16,200 903,150
Dun & Bradstreet Corp........................... 28,700 1,036,788
Gannett Co., Inc................................ 47,800 3,396,788
HBO & Co........................................ 71,000 2,502,750
Houghton Mifflin Co............................. 240,700 7,642,225
Interpublic Group of Companies, Inc............. 21,200 1,286,575
Knight-Ridder, Inc.............................. 252,100 13,881,256
Lee Enterprises, Inc............................ 208,900 6,397,563
McGraw-Hill, Inc................................ 16,700 1,362,094
Mediaone Group, Inc. (a)........................ 102,300 4,494,806
Meredith Corp................................... 8,900 417,744
New York Times Co. (Class "A" Stock)............ 16,200 1,283,850
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 85,468 3,285,176
Time Warner, Inc................................ 97,400 8,321,613
Times Mirror Co. (Class "A" Stock).............. 14,900 936,838
Tribune Co...................................... 20,700 1,424,419
Viacom, Inc. (Class "B" Stock) (a).............. 59,500 3,465,875
--------------
111,176,723
--------------
METALS - FERROUS -- 0.7%
AK Steel Holding Corp........................... 191,800 3,428,425
Allegheny Teledyne, Inc......................... 33,000 754,875
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Armco, Inc. (a)................................. 18,200 $ 116,025
Bethlehem Steel Corp. (a)....................... 925,200 11,507,175
Inland Steel Industries, Inc.................... 8,200 231,138
LTV Corp........................................ 841,400 8,045,888
Material Sciences Corp. (a)..................... 397,900 4,625,588
National Steel Corp. (Class "B"
Stock) (a).................................... 172,800 2,052,000
Nucor Corp...................................... 14,800 680,800
USX-U.S. Steel Group, Inc....................... 291,600 9,622,800
Worthington Industries, Inc..................... 16,300 245,519
--------------
41,310,233
--------------
METALS - NON FERROUS -- 0.8%
Alcan Aluminum Ltd.............................. 38,300 1,058,038
Aluminum Company of America..................... 677,200 44,652,875
Cyprus Amax Minerals Co......................... 15,700 208,025
Inco Ltd........................................ 28,100 382,863
Reynolds Metals Co.............................. 12,400 693,625
--------------
46,995,426
--------------
MINERAL RESOURCES
ASARCO, Inc..................................... 6,800 151,300
Burlington Resources, Inc....................... 29,700 1,278,956
Homestake Mining Co............................. 35,600 369,350
Phelps Dodge Corp............................... 9,900 566,156
--------------
2,365,762
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.0%
Coltec Industries, Inc.......................... 179,200 3,561,600
Crane Co........................................ 7,700 373,931
Donaldson Co., Inc.............................. 448,600 10,598,175
Ecolab, Inc..................................... 21,700 672,700
General Signal Corp............................. 7,300 262,800
IDEX Corp....................................... 246,700 8,511,150
ITT Industries, Inc............................. 20,000 747,500
Laidlaw, Inc.................................... 55,400 675,188
Mark IV Industries, Inc......................... 355,500 7,687,688
Millipore Corp.................................. 7,300 198,925
NACCO Industries, Inc. (Class "A" Stock)........ 1,400 180,950
Pall Corp....................................... 21,000 430,500
PPG Industries, Inc............................. 30,000 2,086,875
Textron, Inc.................................... 27,700 1,985,744
Thermo Electron Corp. (a)....................... 26,800 916,225
Trinity Industries, Inc......................... 214,100 8,885,150
Wolverine Tube, Inc. (a)........................ 155,300 5,901,400
York International Corp......................... 110,600 4,818,013
--------------
58,494,514
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6%
American Greetings Corp. (Class "A" Stock)...... 12,300 626,531
Black & Decker Corp............................. 16,000 976,000
Corning, Inc.................................... 38,900 1,351,775
Eastman Kodak Co................................ 197,400 14,422,538
Jostens, Inc.................................... 6,500 156,813
Minnesota Mining & Manufacturing Co............. 68,800 5,654,500
Polaroid Corp................................... 7,600 270,275
Rubbermaid, Inc................................. 25,200 836,325
Unilever N.V., ADR, (United Kingdom)............ 107,800 8,509,463
--------------
32,804,220
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 28,700 1,092,394
--------------
OIL & GAS -- 2.9%
Amerada Hess Corp............................... 15,400 836,413
Amoco Corp...................................... 164,000 6,826,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Anadarko Petroleum Corp......................... 10,100 $ 678,594
Ashland, Inc.................................... 12,700 655,638
Atlantic Richfield Co........................... 54,000 4,218,750
Basin Exploration, Inc. (a)..................... 71,400 1,258,425
Cabot Oil & Gas Corp. (Class "A" Stock)......... 363,800 7,276,000
Chevron Corp.................................... 110,600 9,186,713
Coastal Corp.................................... 17,900 1,249,644
Eastern Enterprises............................. 3,400 145,775
Enron Oil & Gas Co.............................. 198,700 4,023,675
Exxon Corp...................................... 415,400 29,623,213
Kerr-McGee Corp................................. 8,000 463,000
Mobil Corp...................................... 132,100 10,122,163
Murphy Oil Corp................................. 114,000 5,778,375
NICOR, Inc...................................... 8,100 325,013
Noble Affiliates, Inc........................... 208,900 7,938,200
Pennzoil Co..................................... 8,000 405,000
Phillips Petroleum Co........................... 44,300 2,134,706
Pioneer Natural Resources Co.................... 1,488,431 35,536,290
Royal Dutch Petroleum Co........................ 361,200 19,798,275
Seagull Energy Corp. (a)........................ 245,500 4,066,094
Sun Co., Inc.................................... 15,900 617,119
Texaco, Inc..................................... 92,300 5,509,156
Union Pacific Resources Group, Inc.............. 42,800 751,675
Unocal Corp..................................... 41,500 1,483,625
USX-Marathon Group.............................. 48,600 1,667,588
Western Gas Resources, Inc...................... 423,100 6,187,838
--------------
168,763,457
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.9%
Elf Aquitaine SA, ADR, (France)................. 513,400 36,451,400
Occidental Petroleum Corp....................... 57,100 1,541,700
Oryx Energy Co. (a)............................. 524,800 11,611,200
--------------
49,604,300
--------------
OIL & GAS SERVICES -- 1.5%
Apache Corp..................................... 16,100 507,150
Baker Hughes, Inc............................... 28,500 985,031
Dresser Industries, Inc......................... 29,600 1,304,250
Enron Corp...................................... 55,300 2,989,656
Halliburton Co.................................. 44,100 1,965,206
Helmerich & Payne, Inc.......................... 8,500 189,125
J. Ray McDermott, SA............................ 672,900 27,925,350
McDermott International, Inc.................... 1,243,400 42,819,588
ONEOK, Inc...................................... 5,200 207,350
Rowan Companies, Inc. (a)....................... 14,600 283,788
Schlumberger Ltd................................ 83,800 5,724,588
Western Atlas, Inc. (a)......................... 9,200 780,850
--------------
85,681,932
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 340,400 3,297,625
Barrick Gold Corp............................... 62,800 1,204,975
Battle Mountain Gold Co......................... 38,700 229,781
Freeport-McMoRan Copper & Gold, Inc............. 32,600 495,113
Newmont Mining Corp............................. 26,400 623,700
Placer Dome, Inc................................ 41,600 488,800
--------------
6,339,994
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp............... 26,300 2,582,331
CSX Corp........................................ 36,800 1,674,400
Norfolk Southern Corp........................... 63,500 1,893,094
Union Pacific Corp.............................. 41,600 1,835,600
--------------
7,985,425
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 1.0%
Crescent Operating, Inc. (a).................... 67,240 $ 1,143,080
Crescent Real Estate Equities Co................ 1,092,000 36,718,500
Equity Residential Properties Trust............. 150,900 7,158,319
Vornado Realty Trust............................ 377,600 14,986,000
--------------
60,005,899
--------------
RESTAURANTS -- 0.2%
McDonald's Corp................................. 116,000 8,004,000
Tricon Global Restaurants, Inc. (a)............. 25,600 811,200
Wendy's International, Inc...................... 22,300 524,050
--------------
9,339,250
--------------
RETAIL -- 3.5%
Albertson's, Inc................................ 41,400 2,145,038
American Stores Co.............................. 46,000 1,112,625
AutoZone, Inc. (a).............................. 25,600 817,600
Bombay Company, Inc. (a)........................ 571,600 2,715,100
Charming Shoppes, Inc. (a)...................... 3,332,400 15,828,900
Circuit City Stores, Inc........................ 16,600 778,125
Consolidated Stores Corp. (a)................... 18,100 656,125
Costco Companies, Inc. (a)...................... 36,100 2,276,556
CVS Corp........................................ 64,400 2,507,575
Dayton-Hudson Corp.............................. 73,600 3,569,600
Designs, Inc.................................... 203,900 318,594
Dillard's, Inc.................................. 149,000 6,174,188
Federated Department Stores, Inc. (a)........... 35,300 1,899,581
Great Atlantic & Pacific Tea Co., Inc........... 6,400 211,600
Harcourt General, Inc........................... 11,900 708,050
Home Depot, Inc................................. 123,200 10,233,300
IKON Office Solutions, Inc...................... 22,700 330,569
Jan Bell Marketing, Inc......................... 621,400 4,039,100
Kmart Corp. (a)................................. 2,579,100 49,647,675
Kroger Co. (a).................................. 42,900 1,839,338
Liz Claiborne, Inc.............................. 11,300 590,425
Longs Drug Stores, Inc.......................... 6,500 187,688
May Department Stores Co........................ 39,000 2,554,500
Mercantile Stores Co., Inc...................... 6,200 489,413
Newell Co....................................... 26,800 1,334,975
Nordstrom, Inc.................................. 13,000 1,004,250
Penney (J.C.) Co., Inc.......................... 42,100 3,044,356
Pep Boys - Manny, Moe & Jack.................... 10,700 202,631
Phillips-Van Heusen Corp........................ 389,200 5,740,700
Rite Aid Corp................................... 43,400 1,630,213
Sears, Roebuck & Co............................. 66,000 4,030,125
Sherwin-Williams Co............................. 29,100 963,938
Supervalu, Inc.................................. 10,100 448,188
Tandy Corp...................................... 17,400 923,288
The Gap, Inc.................................... 66,700 4,110,388
The Limited, Inc................................ 827,900 27,424,188
TJX Companies, Inc.............................. 54,400 1,312,400
Toys 'R' Us, Inc. (a)........................... 405,900 9,564,019
Venator Group, Inc. (a)......................... 22,700 434,138
Wal-Mart Stores, Inc............................ 378,300 22,981,725
Walgreen Co..................................... 83,400 3,445,463
Winn-Dixie Stores, Inc.......................... 25,000 1,279,688
--------------
201,505,938
--------------
RUBBER -- 0.2%
Cooper Tire & Rubber Co......................... 13,300 274,313
Goodyear Tire & Rubber Co....................... 187,400 12,075,588
--------------
12,349,901
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 27,700 365,294
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS -- 3.0%
Airtouch Communications, Inc. (a)............... 95,000 $ 5,551,563
Alcatel Alsthom, ADR, (France).................. 513,000 20,872,688
Alltel Corp..................................... 31,000 1,441,500
Ameritech Corp.................................. 184,400 8,274,950
Andrew Corp. (a)................................ 14,900 269,131
Ascend Communications, Inc. (a)................. 32,500 1,610,781
AT&T Corp....................................... 273,600 15,629,400
Bell Atlantic Corp.............................. 261,600 11,935,500
BellSouth Corp.................................. 167,000 11,209,875
Deutsche Telekom AG, ADR, (Germany)............. 185,000 5,087,500
DSC Communications Corp. (a).................... 19,900 597,000
Frontier Corp................................... 27,700 872,550
General Instrument Corp. (a).................... 24,900 676,969
GTE Corp........................................ 161,300 8,972,313
Lucent Technologies, Inc........................ 219,200 18,234,700
MCI Communications Corp......................... 117,300 6,818,063
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 44,200 1,099,475
Northern Telecom Ltd............................ 87,700 4,976,975
SBC Communications, Inc......................... 308,800 12,352,000
Scientific-Atlanta, Inc......................... 13,300 337,488
Sprint Corp..................................... 72,400 5,104,200
Telecomunicacoes Brasileiras, S.A., ADR,
(Brazil)...................................... 168,000 18,343,500
Tellabs, Inc. (a)............................... 30,600 2,191,725
US West, Inc.................................... 83,541 3,926,432
WorldCom, Inc. (a).............................. 170,600 8,263,438
--------------
174,649,716
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 7,200 366,300
Pillowtex Corp.................................. 73,932 2,966,522
Russell Corp.................................... 6,100 184,144
Springs Industries, Inc......................... 3,400 156,825
Tultex Corp. (a)................................ 362,600 883,838
VF Corp......................................... 20,600 1,060,900
--------------
5,618,529
--------------
TOBACCO -- 0.6%
B.A.T. Industries, PLC, ADR, (United Kingdom)... 432,600 8,733,113
Philip Morris Co., Inc.......................... 699,700 27,550,688
UST, Inc........................................ 31,000 837,000
--------------
37,120,801
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 22,400 880,600
Mattel, Inc..................................... 49,000 2,073,313
--------------
2,953,913
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 24,700 1,549,925
Ryder System, Inc............................... 12,900 407,156
Yellow Corp. (b)................................ 178,700 3,317,119
--------------
5,274,200
--------------
UTILITY - ELECTRIC -- 0.6%
Ameren Corp..................................... 23,100 918,225
American Electric Power Co., Inc................ 31,900 1,447,463
Baltimore Gas & Electric Co..................... 24,900 773,456
Carolina Power & Light Co....................... 25,300 1,097,388
Central & South West Corp....................... 35,700 959,438
CINergy Corp.................................... 26,600 931,000
Consolidated Edison, Inc........................ 39,600 1,824,075
Dominion Resources, Inc......................... 32,600 1,328,450
DTE Energy Co................................... 24,400 985,150
Duke Energy Corp................................ 60,600 3,590,550
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Edison International............................ 64,300 $ 1,900,869
Entergy Corp.................................... 41,100 1,181,625
FirstEnergy Corp................................ 38,800 1,193,100
FPL Group, Inc.................................. 30,600 1,927,800
GPU, Inc........................................ 21,400 809,188
Houston Industries, Inc......................... 47,600 1,469,650
Niagara Mohawk Power Corp. (a).................. 24,300 362,981
Northern States Power Co........................ 25,100 718,488
Pacific Gas & Electric Co....................... 64,200 2,026,313
PacifiCorp...................................... 50,000 1,131,250
PECO Energy Co.................................. 37,500 1,094,531
PP&L Resources, Inc............................. 27,900 632,981
Public Service Enterprise Group, Inc............ 39,100 1,346,506
Southern Co..................................... 116,200 3,217,288
Texas Utilities Co.............................. 41,500 1,727,438
Unicom Corp..................................... 36,500 1,279,781
--------------
35,874,984
--------------
TOTAL COMMON STOCKS
(cost $2,637,225,219).................................................... 2,995,727,880
--------------
PREFERRED STOCKS -- 0.4%
FINANCIAL SERVICES
Central Hispano Capital Corp.,.................. 1,000,000 25,450,000
--------------
</TABLE>
(cost $25,440,000)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT
LONG-TERM BONDS -- 42.3% RATING (000)
------------ ---------
<S> <C> <C> <C>
AEROSPACE -- 0.2%
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 $ 14,000 13,944,000
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 2,875 2,936,812
--------------
AIRLINES -- 2.4%
Calair Capital Corp.,
8.125%, 04/01/08.............................. Ba2 6,000 5,985,000
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 24,887,819
10.375%, 02/01/11(c).......................... Baa3 31,250 41,236,875
United Airlines, Inc.,
5.908%, 03/02/04.............................. Aa2 7,812 7,780,721
9.75%, 08/15/21............................... Baa3 8,125 10,577,531
10.67%, 05/01/04.............................. Baa3 19,500 23,297,820
11.21%, 05/01/14.............................. Baa3 17,500 24,310,650
--------------
138,076,416
--------------
ASSET-BACKED SECURITIES -- 0.3%
California Infrastructure,
6.17%, 03/25/03............................... Aaa 4,000 4,027,520
MBNA Master Credit Card Trust,
5.695%, 11/15/02.............................. NR 1,000 1,000,620
Premier Auto Trust,
5.82%, 12/08/00............................... Aaa 3,000 3,000,469
SMS Student Loan Trust 1998-A,
5.739%, 10/26/28.............................. Aaa 3,150 3,150,984
Standard Credit Card Master Trust,
5.95%, 10/07/04(b)............................ Aaa 4,500 4,490,145
--------------
15,669,738
--------------
AUTO - CARS & TRUCKS -- 0.2%
Navistar International Corp.,
7.00%, 02/01/03............................... Ba1 11,500 11,528,750
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
BANKS AND SAVINGS & LOANS -- 3.8%
Banc One Corp.,
5.658%, 09/30/99.............................. Aa3 $ 5,000 $ 5,017,300
Banco Ganadero, SA, M.T.N., (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,409,500
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 5,400 5,481,000
BankAmerica Corp.,
5.788%, 09/26/01.............................. Aa3 8,900 8,922,250
Bankers Trust New York Corp.,
5.754%, 08/06/00.............................. A2 2,500 2,491,250
BT Securities Corp.,
5.949%, 02/24/00.............................. A3 5,000 4,957,000
Capital One Bank,
6.844%, 06/13/00.............................. Baa3 23,900 24,186,322
Central Hispano Financial Services, (Portugal),
6.219%, 04/28/05.............................. A3 5,000 5,020,000
Chase Manhattan Corp.,
5.838%, 02/13/03.............................. A2 3,000 3,000,000
Chemical Banking,
5.891%, 02/28/00.............................. Aa3 6,000 6,026,400
Citicorp, M.T.N.,
5.861%, 05/15/00.............................. Aa3 10,000 10,045,600
First Chicago NBD Corp.,
5.768%, 06/10/02.............................. A1 10,000 9,990,300
Huntington National Bank,
5.788%, 12/02/01.............................. A1 5,000 5,000,000
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49(b)............................ A3 9,000 9,228,960
Key Bank N.A.,
5.688%, 08/29/00.............................. Aa3 7,000 6,978,370
MBNA America Bank N.A.,
5.888%, 07/18/01.............................. Baa1 5,000 4,986,500
MBNA Corp.,
6.038%, 09/08/00.............................. Baa2 3,000 2,997,000
Merita Bank Ltd.,
7.50%, 12/29/49(b)............................ NR 12,000 12,449,280
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 8,700 8,967,351
6.60%, 12/10/07............................... A1 5,000 5,043,000
National Bank of Hungary,
7.191%, 08/29/99.............................. Baa2 5,000 5,062,500
Nationsbank Corp.,
5.858%, 06/19/02.............................. A1 5,000 5,028,300
Norwest Corp.,
5.738%, 11/13/01.............................. Aa3 8,450 8,446,620
Okobank, (Finland),
7.238%, 09/27/49(b)........................... A3 18,750 18,328,125
7.325%, 10/29/49.............................. A3 9,000 9,081,000
7.70%, 10/29/49(b)............................ A3 3,500 3,531,500
Royal Bank of Canada, (Canada),
6.75%, 10/24/11(b)............................ AA3 5,000 5,097,800
Suntrust Bank, Inc.,
5.768%, 04/22/02.............................. A1 10,000 10,005,500
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49(b)........................... A1 5,000 5,100,000
--------------
217,878,728
--------------
CABLE & PAY TELEVISION SYSTEMS -- 0.8%
Rogers Cablesystems, Inc., (Canada),
10.00%, 03/15/05.............................. Ba3 2,000 2,220,000
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Tele-Communications, Inc.,
6.328%, 04/03/02.............................. Baa3 $ 2,000 $ 2,030,300
6.34%, 02/01/02............................... Baa3 8,500 8,468,635
6.375%, 09/15/99.............................. Baa3 6,400 6,429,376
6.438%, 12/20/00.............................. Ba1 5,000 5,059,900
7.375%, 02/15/00.............................. Ba1 6,000 6,126,300
9.875%, 06/15/22.............................. Baa3 12,878 17,474,158
--------------
47,808,669
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.8%
Computer Associates International, Inc.,
6.375%, 04/15/05.............................. Baa1 28,250 27,967,500
6.50%, 04/15/08............................... Baa1 20,000 19,746,800
--------------
47,714,300
--------------
CONSULTING -- 0.5%
Comdisco, Inc.,
5.94%, 04/13/00............................... Baa1 12,500 12,468,750
6.11%, 08/04/99............................... Baa1 12,500 12,533,375
6.375%, 11/30/01.............................. Baa1 2,700 2,711,448
--------------
27,713,573
--------------
CONSUMER SERVICES -- 0.9%
Loewen Group, Inc.,
7.20%, 06/01/03............................... Ba1 20,000 19,923,200
7.60%, 06/01/08............................... Ba1 28,200 28,075,074
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,700,650
--------------
50,698,924
--------------
CONTAINERS -- 1.0%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 40,000 40,388,000
7.80%, 05/15/18............................... Ba1 15,000 15,384,150
--------------
55,772,150
--------------
DRUGS & HEALTHCARE -- 0.8%
Mallinckrodt, Inc.,
6.30%, 03/15/11............................... Baa2 8,000 7,990,000
Tenet Healthcare Corp.,
7.875%, 01/15/03.............................. Ba1 25,275 25,717,312
8.625%, 12/01/03.............................. Ba1 10,000 10,500,000
--------------
44,207,312
--------------
ENERGY -- 0.1%
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,224,425
--------------
FINANCIAL SERVICES -- 4.7%
AIC Corp.,
5.861%, 10/02/02.............................. A1 8,000 7,962,400
AT&T Capital Corp., M.T.N.,
6.25%, 05/15/01............................... Baa3 16,500 16,540,590
Avco Financial Services,
5.739%, 11/17/99.............................. A2 3,500 3,505,390
Caterpillar Financial Services,
5.718%, 10/12/00.............................. A2 3,000 3,004,560
5.774%, 04/10/00.............................. A2 5,000 5,019,600
Conseco, Inc.,
6.40%, 06/15/01............................... Baa3 25,000 24,937,500
6.80%, 06/15/05............................... Baa3 2,000 1,992,500
8.70%, 11/15/26(c)............................ Ba2 30,038 33,768,758
8.796%, 04/01/27.............................. Ba2 12,800 14,502,144
ContiFinancial Corp.,
7.50%, 03/15/02............................... Ba1 8,340 8,335,997
8.125%, 04/01/08.............................. Ba1 10,700 10,830,647
8.375%, 08/15/03.............................. Ba1 5,000 5,177,950
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Ford Motor Credit Co.,
5.813%, 02/13/03.............................. A1 $ 10,000 $ 9,997,600
General Motors Acceptance Corp., M.T.N.,
5.719%, 10/30/00.............................. A3 10,000 9,988,900
5.95%, 04/20/01............................... A2 14,700 14,663,250
Household Finance Corp.,
5.819%, 05/04/01.............................. A2 8,000 7,991,200
International Lease Finance Corp.,
6.00%, 05/15/02............................... A1 43,100 42,936,220
PT Alatief Freeport Co., (Netherlands),
9.75%, 04/15/01............................... B3 7,600 6,764,000
Santander International,
5.699%, 08/14/02.............................. Aa3 6,500 6,485,511
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 24,431 24,424,783
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 12,000 12,919,560
--------------
271,749,060
--------------
FOREST PRODUCTS -- 0.2%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 11,000 10,986,250
--------------
INDUSTRIAL -- 1.7%
Blount Inc.,
7.00%, 06/15/05............................... BA1 20,000 19,719,400
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03.............................. NR 5,650 5,438,125
Security Capital Group,
6.95%, 06/15/05............................... Baa1 4,500 4,494,375
7.70%, 06/15/28............................... Baa1 5,000 5,052,700
U.S. Filter Corp.,
6.375%, 05/15/01.............................. Ba1 20,000 19,976,600
6.50%, 05/15/03............................... Ba1 42,000 41,906,340
--------------
96,587,540
--------------
INVESTMENT BANKING -- 3.9%
Bear Stearns & Co.,
5.724%, 10/10/00.............................. A2 5,000 4,993,500
Dean Witter, Discover & Co.
5.941%, 02/13/01.............................. A1 4,500 4,500,000
Donaldson, Lufkin & Jenrette, Inc.,
5.938%, 09/18/02.............................. A3 7,500 7,488,750
Goldman, Sachs Group,
5.999%, 01/30/02.............................. A1 10,000 10,000,000
Lehman Brothers Holdings, Inc.,
5.988%, 09/03/02.............................. Baa1 10,000 9,980,900
6.40%, 08/30/00(c)............................ Baa1 93,250 93,774,997
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
5.838%, 06/24/03.............................. Aa3 10,000 9,990,000
Morgan Stanley Group, Inc.,
5.838%, 12/19/01.............................. A1 5,000 5,024,500
Morgan Stanley Dean Witter Discover & Co.,
M.T.N.,
5.89%, 03/20/00............................... A1 15,000 14,989,500
6.09%, 03/09/01............................... A1 15,000 15,019,500
PaineWebber Group, Inc.,
6.238%, 10/03/02.............................. Baa1 5,000 5,006,950
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Salomon, Inc.,
6.238%, 09/18/01.............................. A2 $ 5,000 $ 5,061,500
6.50%, 03/01/00............................... A2 19,000 19,144,400
6.59%, 02/21/01............................... A2 8,250 8,364,345
6.75%, 08/15/03............................... A2 5,000 5,123,350
7.25%, 05/01/01............................... A2 8,625 8,869,691
--------------
227,331,883
--------------
LODGING -- 0.9%
ITT Corp.,
6.25%, 11/15/00............................... Ba1 41,983 40,916,632
6.75%, 11/15/03............................... Baa2 12,000 11,605,200
--------------
52,521,832
--------------
MEDIA -- 1.2%
CBS Corp.,
7.15%, 05/20/05............................... Ba1 23,500 23,500,000
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,345,791
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 34,350 36,598,208
--------------
69,443,999
--------------
MISCELLANEOUS -- 0.2%
Excelsior Master Trust,
5.868%, 03/15/04.............................. Aaa 5,000 5,000,000
New York City,
6.023%, 08/01/02.............................. A3 5,000 4,997,500
6.023%, 08/08/02.............................. A3 1,500 1,498,500
--------------
11,496,000
--------------
OIL & GAS -- 0.1%
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,116,000
--------------
OIL & GAS SERVICES -- 1.7%
KN Energy, Inc.,
6.30%, 03/01/01............................... Baa2 20,000 20,033,200
R&B Falcon Corp.,
6.50%, 04/15/03............................... Ba1 4,000 3,958,400
6.75%, 04/15/05............................... Ba1 35,750 35,347,098
Williams Companies, Inc.,
5.95%, 02/15/00............................... Baa2 41,000 40,848,300
--------------
100,186,998
--------------
REAL ESTATE INVESTMENT TRUST -- 1.5%
EOP Operating, L.P.,
6.50%, 06/15/04............................... Baa1 6,000 5,988,000
6.625%, 02/15/05.............................. Baa1 18,187 18,199,731
ERP Operating, L.P.,
6.63%, 04/13/15............................... A3 15,300 15,376,500
Felcor Suites, L.P.,
7.375%, 10/01/04.............................. Ba1 25,000 24,688,500
Gables Realty Trust,
6.80%, 03/15/05............................... Baa2 7,500 7,443,750
Simon Debartolo Group, Inc.,
6.75%, 06/15/05............................... Baa1 17,500 17,390,625
--------------
89,087,106
--------------
RETAIL -- 2.0%
Dayton Hudson,
5.95%, 06/15/00............................... A3 9,000 8,992,710
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Baa2 $ 3,600 $ 3,845,520
8.50%, 06/15/03(b)............................ Baa2 54,890 59,830,100
10.00%, 02/15/01.............................. Baa2 11,000 11,979,000
Meyer (Fred), Inc.,
7.15%, 03/01/03............................... Ba2 32,545 32,705,447
--------------
117,352,777
--------------
TELECOMMUNICATIONS -- 1.8%
360 Communication Co.,
7.125%, 03/01/03.............................. Baa1 23,776 24,661,180
7.50%, 03/01/06............................... Baa1 35,000 37,309,300
7.60%, 04/01/09............................... Baa1 6,250 6,762,313
AT&T Universal Card Master Trust,
5.789%, 04/19/04.............................. Aaa 4,000 4,005,000
Cable & Wire Communications, Inc., (United
Kingdom),
6.375%, 03/06/03.............................. Baa1 9,300 9,323,250
6.625%, 03/06/05.............................. Baa1 5,000 5,031,250
US West Capital Corp.,
6.875%, 07/15/28.............................. A3 15,800 15,807,900
--------------
102,900,193
--------------
TOBACCO -- 0.5%
Philip Morris Cos., Inc.,
6.15%, 03/15/10............................... A2 20,000 19,975,000
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 4,600 4,797,202
9.25%, 08/15/13............................... Baa3 7,000 7,550,620
--------------
32,322,822
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.9%
Enterprise Rent-A-Car USA Finance Co.,
6.35%, 01/15/01............................... Baa3 21,000 21,105,000
6.95%, 03/01/04............................... Baa2 7,500 7,603,125
7.00%, 06/15/00............................... Baa2 13,500 13,702,500
Ryder System, Inc.,
7.51%, 03/24/00............................... Baa1 3,000 3,077,550
8.34%, 01/26/00............................... Baa1 5,000 5,179,650
--------------
50,667,825
--------------
UTILITIES -- 0.8%
Consolidated Edison,
5.748%, 06/15/02.............................. A1 7,000 7,010,710
5.788%, 12/15/01.............................. A1 3,000 3,007,410
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 1,000 1,018,710
6.875%, 12/15/07.............................. Baa1 4,550 4,671,986
Hydro-Quebec, (Canada),
5.813%, 09/29/49.............................. A+ 6,250 5,531,250
Niagara Mohawk Power,
7.00%, 10/01/00............................... Ba3 25,000 25,031,250
--------------
46,271,316
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 7.9%
Federal National Mortgage Association,
Zero Coupon, 10/09/19(b)...................... 11,800 3,394,388
United States Treasury Bonds,
8.00%, 11/15/21............................... 131,300 169,253,578
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
United States Treasury Notes,
5.375%, 02/15/01.............................. $ 32,300 $ 32,188,888
5.50%, 02/29/00............................... 4,900 4,898,481
5.50%, 01/31/03............................... 10,200 10,192,044
5.625%, 05/15/08.............................. 8,875 8,995,611
5.75%, 04/30/03............................... 4,700 4,746,248
6.125%, 11/15/27.............................. 180,950 193,898,782
6.50%, 05/15/05............................... 1,200 1,266,564
6.625%, 03/31/02.............................. 19,100 19,783,398
7.25%, 05/15/04............................... 8,900 9,656,500
--------------
458,274,482
--------------
FOREIGN GOVERNMENT BONDS -- 0.4%
Banco de Commercio Exterior de Colombia, SA,
M.T.N.,
8.625%, 06/02/00.............................. Baa3 5,500 5,582,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 14,600 11,680,000
Republic of Argentina,
6.625%, 03/31/05.............................. B1 1,929 1,699,973
Republic of Panama,
6.75%, 05/14/02............................... Ba1 1,846 1,800,045
United Mexican States,
7.002%, 06/27/02.............................. Ba2 2,000 1,952,000
--------------
22,714,518
--------------
TOTAL LONG-TERM BONDS
(cost $2,404,801,952).................................................... 2,446,184,398
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $5,067,467,171).................................................... 5,467,362,278
--------------
SHORT-TERM INVESTMENTS -- 5.2%
ASSET-BACKED SECURITIES -- 0.1%
Restructured Asset Securities Enhanced Return
(d),
5.646%, 07/28/98.............................. NR 4,000 4,000,000
Strategic Money Market Trust 1997-A (d),
5.688%, 09/23/98.............................. NR 5,000 5,000,000
--------------
9,000,000
--------------
BANK NOTES -- 0.1%
American Express Centurion
Bank, (d) 5.616%, 07/22/98.................... NR 5,000 5,000,000
US-Bank, N.A., (d)
5.522%, 07/15/98.............................. NR 3,000 2,999,261
--------------
7,999,261
--------------
CERTIFICATES OF DEPOSIT - DOMESTIC -- 0.2%
Bank of New York,
5.75%, 05/14/99............................... P1 3,000 3,000,718
CoreStates Bank, N.A., (d)
5.606%, 07/21/98.............................. NR 1,000 1,000,000
Taubman Realty Group,
6.519%, 07/27/98.............................. NR 5,500 5,476,405
--------------
9,477,123
--------------
CERTIFICATES OF DEPOSIT - YANKEE -- 0.4%
Abbey National Treasury Services, PLC, (United
Kingdom),
5.50%, 02/05/99............................... NR 6,000 5,997,207
Barclays American Corp., (d)
5.521%, 07/02/98.............................. P3 3,000 2,997,817
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Credit Agricole Indosuez,
5.75%, 04/16/99............................... NR $ 3,000 $ 3,000,807
Dresdner U.S. Finance,
5.95%, 10/20/98............................... P3 5,000 4,999,521
Westdeutsche Landesbank Girozentral, (Germany),
5.82%, 08/03/98............................... P1 2,000 1,999,860
5.83%, 08/03/98............................... P1 3,000 2,999,803
--------------
21,995,015
--------------
COMMERCIAL PAPER -- 0.6%
Baxter International,
5.95%, 07/07/98............................... P2 4,300 4,295,736
Centric Capital Corp.,
5.55%, 09/28/98............................... NR 2,000 1,972,558
Commercial Credit Co.,
5.58%, 07/28/98............................... P1 4,300 4,282,005
Du Pont (E.I.) de Nemours &
Co., 5.54%, 08/10/98.......................... P3 4,300 4,273,531
First Data Corp.,
5.52%, 09/15/98............................... NR 2,000 1,976,693
General Electric Capital Corp.,
5.53%, 09/03/98............................... NR 5,300 5,247,895
International Lease Finance Corp.,
5.75%, 07/01/98............................... A1 2,300 2,300,000
Merck & Co., Inc.,
6.10%, 07/01/98............................... NR 4,094 4,094,000
Old Line Funding Corp.,
5.70%, 08/04/98............................... NR 4,359 4,335,534
Wood Street Funding Corp.,
6.00%, 07/07/98............................... NR 2,000 1,998,000
--------------
34,775,952
--------------
FOREIGN GOVERNMENT OBLIGATIONS
Province of Quebec, (Canada),
5.988%, 06/15/99.............................. A2 2,000 1,999,875
--------------
OTHER CORPORATE OBLIGATIONS -- 1.1%
Abbey National Treasury, (United Kingdom),
5.625%, 03/08/99.............................. Aa2 5,500 5,497,800
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 10,000 9,707,800
AT&T Capital Corp., M.T.N.,
5.934%, 01/14/99.............................. Baa3 10,000 10,000,000
6.65%, 04/30/99............................... Baa3 24,500 24,607,800
Baltimore Gas & Electric,
5.668%, 03/15/99.............................. A2 4,000 4,001,280
Bank of Boston N.A.,
5.848%, 01/25/99.............................. A2 2,500 2,503,925
General Motors Acceptance Corp., (d)
5.568%, 09/21/98.............................. P1 3,500 3,499,110
6.00%, 07/13/98............................... P1 1,000 1,000,025
--------------
60,817,740
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TIME DEPOSIT - EURODOLLAR -- 0.1%
Deutsche Bank,
6.25%, 07/01/98............................... P3 $ 4,300 $ 4,300,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
United States Treasury Bills,
5.015%, 09/17/98.............................. 5,700 5,638,065
5.035%, 09/17/98.............................. 2,200 2,176,000
5.05%, 09/17/98............................... 3,850 3,807,875
--------------
11,621,940
--------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)..................... 140,082 140,082,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $302,383,784)...................................................... 302,068,906
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,369,850,955; Note 6)............................................ 5,769,431,184
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (E).............................
(1,626,609)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 0.3%........................
19,614,550
--------------
NET ASSETS -- 100.0%....................................................... $5,787,419,125
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities-$91,318,472.
(d) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 1998.
(e) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<C> <S> <C> <C> <C> <C>
Long Positions:
659 U.S. T-Note Sep 98 $ 72,072,977 $ 72,284,063 $ 211,086
810 S&P 500 Index Sep 98 $ 255,506,450 $ 231,457,500 $ 5,951,050
7 U.S. T-Bond Sep 98 $ 859,031 $ 865,156 $ 6,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
HIGH YIELD BOND PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 98.0% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS -- 88.9% RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.6%
Compass Aerospace Corp., Sr. Sub. Notes......... Caa1 10.125% 04/15/05 $ 1,500 $ 1,530,000
Sequa Corp., Sr. Sub. Notes..................... B3 9.375% 12/15/03 2,000 2,070,000
Stellex Industries, Inc., Sr. Sub. Notes........ B3 9.50% 11/01/07 1,000 982,500
--------------
4,582,500
--------------
AUTOMOTIVE PARTS -- 2.3%
AM General Corp., Sr. Notes..................... B3 12.875% 05/01/02 3,700 3,700,000
JPS Automotive Products Corp., L.P., Sr.
Notes......................................... B2 11.125% 06/15/01 4,000 4,360,000
Paragon Corp. Holdings, Sr. Notes............... B3 9.625% 04/01/08 2,000 1,780,000
Stanadyne Automotive, Sr. Sub. Notes............ Caa 10.25% 12/15/07 3,000 3,075,000
Venture Holdings Trust, Sr. Notes............... NR 9.50% 07/01/05 2,700 2,730,375
Walbro Corp., Sr. Notes......................... B2 10.125% 12/15/07 1,000 982,500
--------------
16,627,875
--------------
BROADCASTING & OTHER MEDIA -- 2.5%
American Lawyer Media Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until 12/15/02)........... B3 12.25% 12/15/08 5,000 3,181,250
Cumulus Media, Sr. Sub. Notes................... B3 10.375% 07/01/08 1,750 1,776,250
Globo Communicacoes E Particip., Sr. Notes...... NR 10.50% 12/20/06 2,040 1,825,800
Globo Communicacoes, Sr. Notes.................. B1 10.625% 12/05/08 1,000 885,000
Liberty Group Publishing, Sr. Disc. Notes, Zero
Coupon (until 2/01/01)........................ Caa1 11.625% 02/01/09 550 339,625
Paxson Communications Corp., Sr. Sub. Notes..... B3 11.625% 10/01/02 2,500 2,681,250
Shop At Home, Inc., Sr. Sec'd. Notes............ B1 11.00% 04/01/05 1,250 1,318,750
Telemundo Group Inc., Sr. Disc. Notes........... B1 7.00% 02/15/06 750 808,125
Transwestern Publishing, Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... B3 11.875% 11/15/08 3,650 2,409,000
TV Azteca SA de CV, Sr. Notes................... NR 10.50% 02/15/07 2,850 2,850,000
--------------
18,075,050
--------------
BUILDING & RELATED INDUSTRIES -- 3.5%
Ainsworth Lumber Co., Ltd., Bonds............... B3 12.50% 07/15/07 3,125 3,359,375
Engle Homes, Inc., Gtd. Notes................... B1 9.25% 02/01/08 2,500 2,468,750
Engle Homes, Inc., Sr. Notes.................... B1 9.25% 02/01/08 2,500 2,462,500
Falcon Building Products, Inc., Sr. Sub. Disc.
Notes, Zero Coupon (until 6/15/02)............ NR 10.50% 06/15/07 1,900 1,263,500
New Millenium Homes, Sr. Notes.................. NR 12.00% 09/03/04 3,000 2,955,000
Presley Co., Sr. Sub. Notes..................... B2 12.50% 07/01/01 6,907 6,492,580
Webb (Del E.), Sr. Sub. Deb..................... B2 9.375% 05/01/09 3,000 2,962,500
Wickes Lumber Co., Sr. Notes.................... B3 11.625% 12/15/03 3,000 2,917,500
--------------
24,881,705
--------------
CABLE -- 4.4%
CD Radio, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/01/02).............................. NR 15.00% 12/01/07 3,245 1,898,325
Diamond Cable Communications, Sr. Disc. Notes,
Zero Coupon (until 2/15/02)................... NR 12.75% 02/15/07 4,000 2,960,000
Diva Systems Corp., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.625% 03/01/08 1,000 470,000
Echostar Satellite, Sr. Disc. Notes, Zero Coupon
(until 3/15/00)............................... B3 13.125% 03/15/04 1,500 1,378,125
Falcon Holdings Group, Sr. Disc. Deb., Zero
Coupon (until 4/15/03)........................ B2 9.285% 04/15/10 2,000 1,295,000
Intermedia Capital Partners, Sr. Notes.......... B2 11.25% 08/01/06 3,380 3,819,400
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/01)................... B3 12.75% 04/15/05 4,350 3,849,750
International Cabletel, Inc., Zero Coupon (until
10/15/98)..................................... B3 10.875% 10/15/03 1,500 1,500,000
NTL, Inc., Sr. Notes, Zero Coupon (until
4/01/03)...................................... B3 9.75% 04/01/08 2,000 1,300,000
Renaissance Media, Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... B3 10.00% 04/15/08 1,000 622,500
Rogers Cablesystems Inc., Sr. Sec'd. Deb.,
(Canada)...................................... Ba3 10.00% 12/01/07 1,000 1,110,000
Rogers Cablesystems, Inc., Sr. Sec'd. Notes,
(Canada)...................................... Ba3 10.00% 03/15/05 1,750 1,942,500
Scott Cable Communications, Jr. Sub. PIK........ NR 16.00% 07/18/02 108 8,640
Scott Cable Communications, PIK................. NR 15.00% 03/18/02 908 889,656
Star Choice Communications, Inc., Sr. Notes,
(Canada)...................................... NR 13.00% 12/15/05 3,000 3,060,000
Telewest Communications PLC, Sr. Disc. Deb.,
Zero Coupon (until 10/01/00).................. B1 11.00% 10/01/07 3,000 2,475,000
United International Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 10.75% 02/15/08 4,500 2,745,000
--------------
31,323,896
--------------
CHEMICALS -- 0.8%
Borden Chemicals & Plastics, L.P., Sr. Notes.... Ba2 9.50% 05/01/05 1,500 1,500,000
Sterling Chemical Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until 8/15/01)............ Caa 13.50% 08/15/08 5,060 2,884,200
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes......................................... B3 11.75% 08/15/06 1,000 1,000,000
--------------
5,384,200
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
CONSUMER PRODUCTS -- 4.9%
Coinstar Inc., Sr. Disc. Notes, Zero Coupon
(until 10/01/99).............................. NR 13.00% 10/01/06 $ 4,275 $ 3,569,625
Corning Consumer Products, Sr. Sub. Notes....... B3 9.625% 05/01/08 2,500 2,481,250
Edison Brothers Corp., Sr. Notes................ NR 11.00% 09/26/07 3,680 2,833,600
Electronic Retailing Systems, Sr. Disc. Notes,
Zero Coupon (until 2/01/00)................... NR 13.25% 02/01/04 2,000 880,000
French Fragrances, Inc., Sr. Notes.............. B2 10.375% 05/15/07 2,470 2,618,200
Hedstrom Corp., Sr. Sub. Notes.................. NR 10.00% 06/01/07 900 922,500
Hedstrom Holding, Inc., Sr. Disc. Notes, Zero
Coupon (until 6/01/02)........................ NR 12.00% 06/01/09 400 252,000
Icon Health & Fitness, Sr. Sub. Notes........... Caa 13.00% 07/15/02 3,000 3,000,000
IHF Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/15/99).............................. NR 15.00% 11/15/04 2,250 1,575,000
Interact Systems Inc., Sr. Disc. Notes, Zero
Coupon (until 8/1/99)......................... NR 14.00% 08/01/03 4,400 1,980,000
La Petite Holdings, Sr. Notes................... B3 10.00% 05/15/08 750 757,500
Packaging Resources Group, Sr. Notes............ NR 13.00% 06/30/03 1,985 1,488,670
Radnor Holdings, Sr. Notes...................... B2 10.00% 12/01/03 1,500 1,560,000
Rayovac Corp., Sr. Sub. Notes................... B3 10.25% 11/01/06 2,080 2,256,800
Remington Products Co., Sr. Sub. Notes.......... B3 11.00% 05/15/06 2,625 2,415,000
Sealy Corp., Sr. Disc. Notes, Zero Coupon (until
12/15/02)..................................... B3 10.875% 12/15/07 2,500 1,625,000
Syratech Corp., Sr. Notes....................... B1 11.00% 04/15/07 2,500 2,225,000
Waste System International, Sr. Sub. Notes...... Caa1 7.00% 05/13/05 2,000 2,030,000
--------------
34,470,145
--------------
DRUGS & HEALTHCARE -- 4.1%
Abbey Healthcare Group, Inc., Bonds............. B1 9.50% 11/01/02 1,000 990,000
Dade International, Inc., Sr. Sub Notes......... B3 11.125% 05/01/06 6,250 7,062,500
Fresenius Medical Co., Gtd. Notes............... Ba3 7.875% 02/01/08 2,100 2,063,250
Graham-Field Health Products, Inc., Sr. Sub.
Notes......................................... B3 9.75% 08/15/07 5,000 4,500,000
Integrated Health Services, Inc., Sr. Sub.
Notes......................................... B2 9.25% 01/15/08 2,100 2,181,375
Magellan Health Services, Bonds................. B3 9.00% 02/15/08 4,000 3,960,000
Medaphis Corp., Sr. Notes....................... B2 9.50% 02/15/05 1,500 1,455,000
Mediq, Inc., Sr. Sub. Notes..................... B3 11.00% 06/01/08 2,000 2,050,000
Paracelsus Health, Sr. Sub. Notes............... B1 10.00% 08/15/06 2,750 2,722,500
Paragon Health Networks, Sr. Sub Notes, Zero
Coupon (until 11/01/02)....................... B3 10.50% 11/01/07 3,000 1,980,000
--------------
28,964,625
--------------
ENERGY -- 4.4%
Anker Coal Group Inc., Sr. Notes................ B3 9.75% 10/01/07 3,000 2,700,000
Chesapeake Energy Corp., Sr. Notes.............. B1 9.625% 05/01/05 2,500 2,506,250
Chiles Offshore, Sr. Notes...................... B3 10.00% 05/01/08 1,000 962,500
Clark USA, Inc., Sr. Notes...................... B3 10.875% 12/01/05 1,250 1,375,000
Gothic Productions Corp., Sr. Notes............. B3 11.125% 05/01/05 1,250 1,187,500
Grant Geophysical, Inc., Sr. Notes.............. B3 9.75% 02/15/08 2,500 2,481,250
Great Lakes Carbon Corp., Sr. Sub. Notes........ B3 10.25% 05/15/08 2,000 2,020,000
Ocean Rig Norway Co., Gtd. Notes................ B3 10.25% 06/01/08 2,000 1,900,000
P & L Coal Holdings, Sr. Notes.................. NR 8.875% 05/15/08 2,000 2,057,500
P & L Coal Holdings, Sr. Sub. Notes............. NR 9.625% 05/15/08 1,500 1,539,375
Parker Drilling Corp., Sr. Notes................ B1 9.75% 11/15/06 850 869,125
Petroleum Heat & Power, Inc., Sub. Deb.......... B2 9.375% 02/01/06 3,000 2,670,000
Petroleum Heat & Power, Inc., Sub. Deb.......... B2 12.25% 02/01/05 813 804,870
Seven Seas Petroleum, Inc., Sr. Notes........... Caa1 12.50% 05/15/05 1,500 1,500,000
Tesoro Petrolem Corp., Sr. Sub. Notes........... B1 9.00% 07/01/08 3,000 3,003,750
Transamerican Energy Corp., Sr. Disc. Notes..... NR 11.50% 06/15/02 900 828,000
Transamerican Energy Corp., Sr. Disc. Notes,
Zero Coupon (until 6/15/99)................... NR 13.00% 06/15/02 1,300 1,066,000
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 11.375% 02/15/09 700 430,500
Universal Compression, Sr. Disc. Notes, Zero
Coupon (until 2/15/03)........................ B2 9.875% 02/15/08 1,750 1,106,875
--------------
31,008,495
--------------
FINANCIAL SERVICES -- 3.1%
AmeriCredit Corp., Sr. Notes.................... B1 9.25% 02/01/04 2,500 2,550,000
Amresco, Inc., Sr. Sub. Notes................... B2 9.875% 03/15/05 1,400 1,414,000
BF Saul Corp., Sr. Notes........................ B3 9.75% 04/01/08 1,750 1,732,500
Delta Financial Corp., Sr. Notes................ B1 9.50% 08/01/04 1,125 1,113,750
First Nationwide Holdings, Inc., Sr. Notes...... B2 12.50% 04/15/03 2,600 2,951,000
First Nationwide Holdings, Inc., Sr. Sub.
Notes......................................... NR 10.625% 10/01/03 1,600 1,808,000
Fuji LLC, Bonds................................. Baa2 9.87% 12/31/49 2,000 1,767,500
Korea Development Bank (Korea) Bonds............ Ba1 7.90% 02/01/02 3,000 2,711,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Nationwide Credit, Sr. Notes.................... B3 10.25% 01/15/08 $ 850 $ 854,250
SB Treasury Co., Bonds.......................... A2 9.40% 12/29/49 5,000 4,956,250
--------------
21,858,350
--------------
FOOD & BEVERAGE -- 3.6%
Advantica Restaurant Group, Bonds............... NR 11.25% 01/15/08 4,762 5,048,218
Curtis-Burns Foods, Inc., Sr. Sub. Notes........ B3 12.25% 02/01/05 2,870 3,128,300
Favorite Brands, Sr. Notes...................... B3 10.75% 05/15/06 1,500 1,515,000
Fresh Foods, Inc., Bonds........................ B3 10.75% 06/01/06 1,250 1,251,562
FRI-MRD Corp., Sr. Disc. Notes, Zero Coupon
(until 8/01/99)............................... NR 15.00% 01/24/02 3,000 2,707,500
Grupo Azucarero Mexico, Sr. Notes............... B3 11.50% 01/15/05 4,000 3,320,000
Packaged Ice, Inc., Sr. Notes................... B3 9.75% 02/01/05 4,000 4,040,000
PSF Holdings, LLC, Notes (b) (cost $255,739;
purchased 9/17/96 and 3/03/97)................ NR 11.00% 09/17/03 256 276,198
Specialty Foods Acquisition Corp., Sr. Notes.... B2 10.25% 08/15/01 2,765 2,682,050
Specialty Foods Corp., Sr. Sub. Notes........... Caa 11.25% 08/15/03 1,850 1,683,500
--------------
25,652,328
--------------
GAMING -- 4.4%
Blue Chip Casino, Sr. Sub. Notes................ NR 9.50% 09/15/02 4,749 3,941,670
Casino Magic Finance Corp., First Mtge. Bonds... B3 13.00% 08/15/03 3,750 4,359,375
Colorado Gaming & Entertainment, Sr. Notes,
PIK........................................... NR 12.00% 06/01/03 3,590 3,877,163
Empress Entertainment, Sr. Sub. Notes........... B1 8.125% 07/01/06 500 501,250
Fitzgerald Gaming, Sr. Notes.................... B3 12.25% 12/15/04 1,750 1,697,500
Grand Casinos Inc., Sr. Notes................... B2 9.00% 10/15/04 1,000 1,085,000
Grand Casinos, Inc., Sr. Notes.................. Ba3 10.125% 12/01/03 2,400 2,616,000
Isle of Capri Black Hawk, LLC, First Mtg.
Notes......................................... B3 13.00% 08/31/04 3,000 3,165,000
Lady Luck Gaming, First Mtge. Notes............. B3 11.875% 03/01/01 2,500 2,593,750
Louisiana Casino Cruises, Inc., Sr. Notes....... NR 11.50% 12/01/98 2,680 2,686,449
Majestic Star Casino, Sr. Notes................. B2 12.75% 05/15/03 1,150 1,260,688
Trump Atlantic City Assoc., First Mtge. Notes... B1 11.25% 05/01/06 1,500 1,458,750
Trump Atlantic City Assoc., First Mtge. Notes... Caa 11.75% 11/15/03 2,100 1,968,750
--------------
31,211,345
--------------
INDUSTRIAL -- 5.7%
Brand Scaffold Services, Sr. Notes.............. B3 10.25% 02/15/08 1,100 1,116,500
Clean Harbors, Inc., Sr. Notes.................. B2 12.50% 05/15/01 1,500 1,380,000
Continental Global Group, Sr. Notes............. B2 11.00% 04/01/07 4,120 4,284,800
Eagle-Picher Industries, Sr. Sub. Notes......... B3 9.375% 03/01/08 1,250 1,256,250
Glasstech, Inc., Sr. Notes...................... NR 12.75% 07/01/04 1,500 1,470,000
ICF Kaiser International, Inc., Sr. Sub.
Notes......................................... B3 13.00% 12/31/03 4,450 4,839,375
Interlake Corp., Sr. Sub. Notes................. B3 12.125% 03/01/02 500 510,000
International Utility Structures, Inc........... Caa1 10.75% 02/01/08 600 606,000
International Wireless Group, Sr. Sub. Notes.... NR 11.75% 06/01/05 3,000 3,300,000
Kaiser Aluminum & Chemical Corp., Sr. Sub.
Notes......................................... B2 12.75% 02/01/03 3,000 3,187,500
Moll Industries, Sr. Sub. Notes................. B3 10.50% 07/01/08 1,000 1,020,000
Motors & Gears Inc., Sr. Notes.................. B3 10.75% 11/15/06 3,500 3,745,000
RBX Corp., Sr. Notes............................ B2 12.00% 01/15/03 3,650 3,467,500
Simonds Industries, Sr. Sub. Notes.............. B3 10.25% 07/01/08 750 750,000
Thermadyne Holdings, Deb., Zero Coupon (until
6/01/03)...................................... Caa1 12.50% 06/01/08 5,000 2,775,000
Thermadyne Manufacturing, Sr. Sub. Notes........ B3 9.875% 06/01/08 2,500 2,518,750
UCAR Global Enterprises, Sr. Sub. Notes......... B1 12.00% 01/15/05 2,500 2,718,750
Viasystems, Inc., Sr. Sub. Notes................ B3 9.75% 06/01/07 1,750 1,820,000
--------------
40,765,425
--------------
LEISURE -- 0.9%
Clearview Cinema Group, Sr. Notes............... B3 10.875% 06/01/08 3,750 3,825,000
Outboard Marine, Sr. Notes...................... B3 10.75% 06/01/08 2,500 2,525,000
--------------
6,350,000
--------------
LODGING -- 0.1%
Premier Cruises Ltd., Sr. Notes................. B3 11.00% 03/15/08 1,000 670,000
--------------
OIL & GAS -- 0.9%
Bayard Drilling Technologies, Inc., Sr. Notes... B2 11.00% 06/30/05 1,500 1,503,750
Empire Gas Corp., Sr. Notes..................... Caa 7.00% 07/15/04 5,300 4,796,500
--------------
6,300,250
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
PAPER/PACKAGING -- 6.2%
AMM Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 7/01/03)............................... Caa 13.50% 07/01/09 $ 6,000 $ 3,165,000
APP International Finance, Sr. Sec'd. Notes..... Ba3 11.75% 10/01/05 3,750 3,300,000
Envirodyne Industries, Inc., Sr. Disc. Notes.... B1 12.00% 06/15/00 2,100 2,231,250
Envirodyne Industries, Inc., Sr. Notes.......... B3 10.25% 12/01/01 4,500 4,477,500
Gaylord Container Corp., Sr. Notes.............. B 9.75% 06/15/07 2,100 2,068,500
Gaylord Container Corp., Sr. Sub. Notes......... Caa1 9.875% 02/15/08 300 291,000
Graham Packaging, Sr. Disc. Notes, Zero Coupon
(until 1/15/03)............................... Caa1 10.75% 01/15/09 1,100 684,750
Maxxam Group Holdings, Inc., Sr. Notes.......... NR 12.00% 08/01/03 4,000 4,460,000
Millar Western Forest, Sr. Notes................ B3 9.875% 05/15/08 2,250 2,205,000
Pacific Lumber Co., Sr. Notes................... B3 10.50% 03/01/03 4,875 5,021,250
SD Warren Co., Sr. Sub. Notes................... B1 12.00% 12/15/04 2,500 2,762,500
Silgan Holdings, Inc., Sub. Debs................ NR 13.25% 07/15/06 3,149 3,542,625
Stone Container, Sr. Sub. Notes................. B3 12.25% 04/01/02 4,000 4,140,000
U.S. Timberlands Klamath Fall, LLC, Sr. Notes... B1 9.625% 11/15/07 2,250 2,289,375
United Stationer Supply Co., Sr. Sub. Notes..... B3 12.75% 05/01/05 2,667 3,040,380
--------------
43,679,130
--------------
PUBLISHING -- 1.5%
American Banknote Corp., Sr. Sub. Notes......... B3 11.25% 12/01/07 5,750 5,606,250
Sullivan Graphics, Inc., Sr. Sub. Notes......... Caa 12.75% 08/01/05 4,500 4,713,750
--------------
10,320,000
--------------
RETAIL -- 6.7%
AKI, Inc., Sr. Notes............................ B2 10.50% 07/01/08 3,750 3,787,500
Barry's Jewelers, Inc., Sr. Notes (d)........... B3 11.00% 12/22/00 750 487,500
County Seat Stores, Inc., Sr. Notes............. NR 12.75% 11/01/04 3,750 3,946,875
Duane Reade Inc., Sr. Sub. Notes................ B3 9.25% 02/15/08 400 405,000
Frank's Nursery & Crafts, Sr. Sub. Notes........ B3 10.25% 03/01/08 2,100 2,115,750
Hechinger Co., Sr. Notes........................ B2 6.95% 10/15/03 5,025 3,743,625
Hills Stores Co., Sr. Notes..................... B1 12.50% 07/01/03 2,500 2,462,500
Merisel Inc., Sr. Notes......................... Ca 12.50% 12/31/04 5,250 5,722,500
New Sassco, Inc., Sr. Notes..................... NR 12.75% 03/31/04 7,171 7,762,608
Pamida, Inc., Sr. Notes......................... B3 11.75% 03/15/03 6,374 6,597,090
Phar-Mor, Inc., Sr. Notes....................... B3 11.72% 09/11/02 4,564 4,792,200
Phillips-Van Heusen Corp., Sr. Sub. Notes....... B1 9.50% 05/01/08 1,250 1,243,750
Speedy Muffler King, Inc., Bonds................ B1 10.875% 10/01/06 3,000 2,550,000
US Office Products, Sr. Sub. Notes.............. B3 9.75% 06/15/08 1,750 1,732,500
--------------
47,349,398
--------------
STEEL & METAL -- 3.1%
Earle M. Jorgensen Co., Sr. Notes............... B3 9.50% 04/01/05 1,000 970,000
Geneva Steel, Sr. Notes......................... B1 9.50% 01/15/04 2,000 1,800,000
Northwestern Steel & Wire, Sr. Notes............ B3 9.50% 06/15/01 1,000 990,000
Pohang Iron & Steel, Notes...................... Ba1 7.125% 07/15/04 5,000 4,062,500
Pohang Iron & Steel, Sr. Notes.................. Ba1 6.625% 07/01/03 2,000 1,619,020
Renco Steel Holdings, Sr. Notes................. NR 10.875% 02/01/05 800 802,000
Sheffield Steel Corp., First Mtg. Notes......... NR 11.50% 12/01/05 3,500 3,561,250
WCI Steel, Inc., Sr. Notes...................... B2 10.00% 12/01/04 2,000 2,055,000
Wheeling-Pittsburgh Corp., Sr. Notes............ B2 9.25% 11/15/07 3,625 3,697,500
WHX Corp., Sr. Notes............................ B3 10.50% 04/15/05 2,500 2,531,250
--------------
22,088,520
--------------
SUPERMARKETS -- 1.2%
Homeland Stores, Inc., Notes.................... NR 10.00% 08/01/03 5,760 5,414,400
Pantry Inc., Sr. Sub. Notes..................... B3 10.25% 10/15/07 2,800 2,842,000
--------------
8,256,400
--------------
TECHNOLOGY -- 2.7%
Ampex, Sr. Notes................................ NR 12.00% 03/15/03 5,000 5,150,000
Anacomp, Inc., Sr. Sub. Notes................... B3 10.875% 04/01/04 2,000 2,110,000
Bell Technology, Sr. Notes...................... NR 13.00% 05/01/05 1,250 1,262,500
Decisionone Corp., Sr. Sub. Notes............... B3 9.75% 08/01/07 4,000 3,840,000
Details Holdings Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... NR 11.875% 11/15/07 1,300 799,500
Details, Inc., Sr. Sub. Notes................... B- 10.00% 11/15/05 1,000 995,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
DII Group, Sr. Sub. Notes....................... B1 8.50% 09/15/07 $ 2,000 $ 1,960,000
Jordan Telecommunication Products, Inc. Sr.
Notes......................................... NR 9.875% 08/01/07 2,900 2,958,000
--------------
19,075,000
--------------
TELECOMMUNICATIONS -- 16.3%
21st Century Telecom Group, Inc., Sr. Disc.
Notes, Zero Coupon (until 2/15/03)............ NR 12.25% 02/15/08 1,500 847,500
Allegiance Telecommunications, Inc., Sr. Disc.
Notes, Zero Coupon (until 2/15/03)............ NR 11.75% 02/15/08 3,800 1,900,000
American Communication Lines, Bonds............. B1 10.25% 06/30/08 2,500 2,537,500
AMSC Acquisition Co., Inc., Sr. Notes........... NR 12.25% 04/01/08 850 790,500
Arch Communications, Inc., Sr. Notes............ Caa 12.75% 07/01/07 3,000 3,022,500
Bestel SA, Sr. Disc. Notes, Zero Coupon (until
5/15/01)...................................... NR 12.75% 05/15/05 1,500 1,012,500
Birch Telecommunications, Inc., Sr. Notes....... NR 14.00% 06/15/08 2,500 2,503,125
CB Richard Ellis Services, Inc., Bonds.......... Ba3 8.875% 06/01/06 2,000 1,985,000
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/01/02) (b) (cost
$3,046,147; purchased on various dates:
6/06/95 through 9/24/97)...................... NR 14.00% 10/01/07 6,000 3,240,000
Crown Castle International, Sr. Disc. Notes,
Zero Coupon (until11/15/02)................... B3 10.625% 11/15/07 1,000 680,000
DTI Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.50% 03/01/08 1,000 540,000
Econophone, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/15/03)............................... NR 11.00% 02/15/08 3,500 1,995,000
First World Communications, Inc., Sr. Disc.
Notes, Zero Coupon (until 4/15/03)............ NR 13.00% 04/15/08 3,000 1,335,000
Focal Communications Corp., Zero Coupon (until
2/15/03)...................................... NR 12.125% 02/15/08 3,500 2,082,500
Geotek Communication, Inc., Sr. Disc. Notes,
Zero Coupon (until 7/15/00) (d)............... Caa 15.00% 07/15/05 4,512 451,200
Global Telesystems, Sr. Notes................... Caa2 9.875% 02/15/05 1,200 1,215,000
GST Telecommunications, Inc., Sr. Sub. Disc.
Notes, Series L, Zero Coupon (until
12/15/00)..................................... NR 13.875% 12/15/05 650 685,750
GST Telecommunications, Inc., Sr. Disc. Notes,
Series L, Zero Coupon (until 12/15/00)........ NR 13.875% 12/15/05 5,200 4,212,000
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/03)................... NR 10.50% 05/01/08 1,250 753,125
Hyperion Telecom, Inc., Sr. Disc. Notes, Zero
Coupon (until 4/15/01)........................ NR 13.00% 04/15/03 3,000 2,235,000
ICG Holdings Inc., Sr. Sub. Notes, Zero Coupon
(until 9/15/00)............................... NR 13.50% 09/15/05 500 427,500
ICG Services, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/01/03)............................... NR 9.875% 05/01/08 2,000 1,170,000
Impsat Corp., Gtd. Sr. Notes.................... B2 12.125% 07/15/03 3,150 3,181,500
Impsat Corp., Sr. Notes......................... B2 12.375% 06/15/08 2,000 2,030,000
Intermedia Communications, Inc., Sr. Notes...... B2 8.60% 06/01/08 2,000 2,025,000
Ionica PLC, Sr. Notes........................... NR 13.50% 08/15/06 6,000 3,600,000
Ionica PLC, Sr. Notes, Zero Coupon (until
5/01/02)...................................... NR 15.00% 05/01/07 500 120,000
IPC Information Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/01)................... B3 10.85% 05/01/08 2,250 1,563,750
Iridium, LLC, Gtd. Notes........................ B3 10.875% 07/15/05 500 496,250
Iridium, LLC, Gtd. Notes........................ B3 14.00% 07/15/05 1,000 1,110,000
Level 3 Communications, Sr. Notes............... B3 9.125% 05/01/08 1,000 967,500
Long Distance International, Inc., Sr. Notes.... NR 12.25% 04/15/08 2,000 1,990,000
Mastec, Inc., Sr. Notes......................... Ba3 7.75% 02/01/08 850 811,750
McCaw Int'l. Ltd., Sr. Disc. Notes, Zero Coupon
(until 4/15/02)............................... NR 13.00% 04/15/07 2,000 1,310,000
Metronet Communications Corp., Zero Coupon
(until 6/15/03)............................... B3 9.95% 06/15/08 4,000 2,475,000
Microcell Telecommunications, Sr. Disc. Notes,
Zero Coupon (until 6/01/06)................... NR 14.00% 06/01/06 3,000 2,242,500
Netia Holdings, Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. B3 11.25% 11/01/07 3,000 1,995,000
Netia Holdings, Sr. Notes....................... B 10.25% 11/01/07 1,000 960,000
Nextel Communications Inc., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B2 9.95% 02/15/08 4,150 2,666,375
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/31/02).................. B3 9.75% 10/31/07 1,500 978,750
NEXTLINK Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/03)................... B3 9.45% 04/15/08 2,000 1,225,000
Omnipoint Corp., Sr. Notes...................... B2 11.625% 08/15/06 800 848,000
Omnipoint Corp., Sr. Notes Series A............. B3 11.625% 08/15/06 4,075 4,319,500
Onepoint Communications Corp., Sr. Notes........ NR 14.50% 06/01/08 2,000 1,880,000
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Series H, Zero Coupon (until 2/01/00)......... NR 15.00% 02/01/05 7,500 6,825,000
Pagemart Wireless, Inc., Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ NR 11.25% 02/01/08 2,600 1,560,000
Park-N-View, Inc., Sr. Notes.................... B3 13.00% 05/15/08 2,000 1,970,000
Price Communications Wireless, Inc., Sr.
Notes......................................... BA3 9.125% 12/15/06 2,500 2,500,000
Price Communications Wireless, Inc., Sr. Sub.
Notes......................................... NR 11.75% 07/15/07 2,500 2,737,500
PTC International Finance Corp., Gtd. Notes,
Zero Coupon (until 7/01/02)................... NR 10.75% 07/01/07 1,750 1,190,000
RCN Corp., Sr. Disc. Notes, Zero Coupon (until
10/15/02)..................................... B3 11.125% 10/15/07 2,000 1,285,000
Rogers Cantel, Inc., Sr. Sub. Notes, Zero Coupon
(until 11/30/02).............................. B2 8.80% 10/01/07 6,800 6,732,000
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/01/00)............................... NR 10.50% 11/01/04 4,000 3,160,000
Unisite, Inc., Sr. Disc. Notes.................. NR 13.00% 12/15/04 4,000 4,283,600
US Xchange, LLC, Sr. Notes...................... NR 15.00% 07/01/08 2,250 2,295,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
USA Mobile Communications, Sr. Notes............ B2 9.50% 02/01/04 $ 3,000 $ 2,715,000
Versatel Telecom, Sr. Notes..................... NR 13.25% 05/15/08 2,000 2,100,000
Viatel Inc., Sr. Notes.......................... Caa1 11.25% 04/15/08 500 526,250
Viatel, Inc., Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... NR 12.50% 04/15/08 1,100 673,750
Wam!Net, Inc. Sr. Disc. Notes, Zero Coupon
(until 3/01/02)............................... NR 13.25% 03/01/05 1,400 882,000
--------------
115,851,675
--------------
TEXTILES -- 1.9%
Cluett American Corp., Sr. Sub. Notes........... NR 10.125% 05/15/08 2,000 1,985,000
Congoleum Corp., Sr. Notes...................... B1 9.00% 02/01/01 945 966,263
Foamex, L.P., Sr. Sub. Notes.................... B3 9.875% 06/15/07 2,950 3,245,000
Steel Heddle Manufacturing, Sr. Sub. Notes...... B3 10.625% 06/01/08 2,000 2,005,000
Tultex Corp., Sr. Notes......................... BA3 9.625% 04/15/07 3,000 2,955,000
Worldtex, Inc., Gtd. Notes...................... B1 9.625% 12/15/07 2,000 2,000,000
--------------
13,156,263
--------------
TRANSPORTATION -- 3.0%
Airtran Airlines, Inc., Gtd. Notes.............. NR 10.50% 04/15/01 3,000 3,015,000
Ameritruck Distribution Corp., Sr. Sub. Notes... B3 12.25% 11/15/05 3,090 1,792,200
Ermis Maritime Holdings, First Mtg. Notes....... B3 12.50% 03/15/06 2,200 2,134,000
Holt Group, Sr. Notes........................... Caa1 9.75% 01/15/06 800 784,000
Kitty Hawk, Inc., Sr. Notes..................... B1 9.95% 11/15/04 2,000 2,080,000
Stena Line AB, Sr. Notes........................ B1 10.625% 06/01/08 2,000 2,025,000
Trans World Airlines, Notes..................... NR 11.375% 03/01/06 2,000 2,005,000
Trans World Airlines, Sr. Notes................. NR 11.50% 12/15/04 1,750 1,841,875
Trism, Inc., Bonds.............................. B2 10.75% 12/15/00 3,750 3,239,063
Valuejet, Inc., Sr. Notes....................... B3 10.25% 04/15/01 2,500 2,431,250
--------------
21,347,388
--------------
UTILITIES -- 0.1%
Korea Electric Power, Notes..................... Ba1 7.00% 10/01/02 1,185 1,008,008
--------------
TOTAL CORPORATE BONDS
(cost $636,967,739)......................................................................... 630,257,971
--------------
CONVERTIBLE BONDS -- 0.1%
OIL & GAS SERVICES -- 0.0%
Key Energy Group, Inc., Sub. Notes.............. NR 5.00% 09/15/04 500 390,000
--------------
TELECOMMUNICATIONS -- 0.1%
Geotek Communications, Inc. (d)................. NR 12.00% 02/15/01 2,000 500,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $2,392,913)........................................................................... 890,000
--------------
<CAPTION>
VALUE
COMMON STOCKS (A) -- 0.2% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cellnet Data Systems, Inc. (b) (cost $170;
purchased 6/23/97)............................ 34,000 329,375
Coinstar, Inc................................... 6,300 58,275
Dr. Pepper Bottling Holdings, Inc., (Class "B"
Stock)........................................ 5,807 162,596
Hedstrom Holding Co............................. 24,261 30,326
Intermedia Communications, PIK.................. 4,750 199,203
Loehmann's Holdings, Inc........................ 4,403 21,190
PSF Holdings, LLC, (b)/(c) (cost $757,452;
purchased 9/17/96)............................ 22,025 356,144
Pagemart Nationwide, Inc........................ 13,125 118,125
Scott Cable Communications, (Class "C" Stock)... 875 0
--------------
TOTAL COMMON STOCKS
(cost $883,643)............................................................................. 1,275,234
--------------
PREFERRED STOCKS -- 8.4%
21st Century Telecom Group, Inc., PIK........... 4,147 418,814
Adelphia Communications, Inc.................... 61,000 7,320,000
AmeriKing, Inc.................................. 21,310 575,362
BioSafe International, Inc...................... 7,219 4,170,965
California Federal Bancorp, Inc................. 100,000 2,731,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cendant Corp.................................... 101,500 $ 3,799,906
Chesapeake Energy Corp.......................... 20,000 850,000
Clark USA, Inc., PIK............................ 5,020 529,610
Cluett American Corp............................ 37,500 3,778,125
Concentric Network Corp......................... 15,000 1,492,500
CSC Holdings, Inc., PIK......................... 212 2,428,888
Day International Group, Inc., PIK.............. 6 570
Eagle-Picher Holdings, Inc...................... 1,700 977,500
EchoStar Communications, Inc., PIK.............. 37,721 4,149,315
Fitzgerald Gaming, Inc.......................... 50,000 1,561,500
Geneva Steel, Inc............................... 22,000 2,530,000
GPA Group PLC................................... 1,550,000 883,500
ICG Communications, Inc......................... 11,880 1,389,913
Intermedia Communications, Inc.................. 90,000 3,386,250
Intermedia Communications, Inc., PIK............ 295,029 3,481,337
International Utility Structures, Inc........... 2,500 272,500
Kelley Oil & Gas Corp........................... 38,400 904,800
Nextel Communications, Inc...................... 8,740 900,220
NEXTLINK Communications, Inc.................... 39,500 2,340,375
Paxson Communications, Inc...................... 51,875 5,395,000
Petroleum Heat & Power, Inc..................... 80,000 1,280,000
Rural Cellular Corp., PIK....................... 5,000 502,500
Viasystems, Inc................................. 42,448 870,191
Viatel, Inc. (a)................................ 7,804 0
Von Hoffman Press, Inc.......................... 20,000 660,000
--------------
59,580,891
--------------
TOTAL PREFERRED STOCKS
(cost $55,390,948).......................................................................... 59,580,891
--------------
<CAPTION>
WARRANTS (A) -- 0.4% UNITS
-------------
<S> <C> <C>
21st Century Telecom Group, Inc., expiring
02/15/10...................................... 4,000 36,000
Allegiance Telecommunications, Inc., expiring
02/03/08...................................... 3,800 9,500
American Banknote Corp., expiring 12/01/02...... 5,750 57,500
American Mobile Sattelite, expiring 04/01/08.... 850 0
American Telecasting, Inc., expiring 08/10/00... 6,500 65
Ampex Corp., expiring 03/15/03.................. 170,000 255,000
Bell Technology, expiring 01/23/01.............. 1,250 0
Bestel Sa, expiring 01/01/04.................... 1,500 0
Birch Telecomm, expiring 06/15/00............... 2,500 0
Cellnet Data Systems, Inc., expiring 01/01/49... 7,010 210,300
Clearnet Communications, Inc., expiring
09/15/05...................................... 26,202 235,818
County Seat Stores, Inc., expiring 01/01/49..... 3,750 0
Diva Systems Corp, expiring 01/01/05............ 3,000 0
DTI Holdings Inc, expiring 01/01/04............. 5,000 0
Electronic Retailing Systems, expiring
01/01/49...................................... 2,000 20,000
Ermis Maritime, expiring 01/01/07............... 2,000 0
First World Communications, expiring 01/01/04... 3,000 0
Fitzgerald Gaming, Inc., expiring 12/19/98...... 62,701 0
Foamex - JPS Automotive, expiring 07/01/99...... 2,000 40,000
Glasstech, Inc., expiring 06/30/04.............. 1,500 1,875
Globalstar Capital Co., expiring 02/15/04....... 1,200 132,000
Hyperion Telecommunications Corp., expiring
04/15/01...................................... 4,250 412,250
ICF Kaiser International, Inc., expiring
12/31/99...................................... 12,500 1,250
ICG Communications, Inc., expiring 09/15/05..... 20,790 519,750
Interact Systems, Inc., expiring 08/01/03....... 4,400 550
Intermedia Communications of Florida, Inc.,
expiring 06/01/00............................. 3,000 465,000
Intl. Utility, expiring 01/01/04................ 250 0
Long Distance Int, expiring 05/01/05............ 2,000 0
McCaw Int'l. Ltd., expiring 01/01/49............ 1,650 8,250
MGC Communications, Inc., expiring 01/01/49..... 1,950 117,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
WARRANTS (A) (CONTINUED) UNITS (NOTE 2)
------------- --------------
<S> <C> <C>
Nextel Communications, Inc.
expiring 12/15/98............................. 1,543 $ 15
expiring 04/05/99............................. 2,250 2,610
Onepoint Communications, expiring 01/01/08...... 2,000 0
Pagemart, Inc., expiring 11/01/03............... 9,200 73,600
Park N View War, expiring 01/01/04.............. 2,000 0
Powertel, Inc., expiring 02/01/06............... 6,720 62,160
President Riverboat Casinos, expiring
09/30/99...................................... 22,075 442
Price Communications Cellular Holdings, expiring
08/01/07...................................... 6,880 178,880
Primus Telecom. Group, expiring 08/01/07........ 1,500 30,000
Star Choice Communications, Inc., expiring
12/15/05...................................... 69,480 27,377
Sterling Chemical Holdings, Inc., expiring
08/15/08...................................... 560 13,440
Unisite, Inc., expiring 12/15/04................ 1,943 0
USN Communications, Inc., expiring 01/01/49..... 10,590 127,080
Versatel Telecom., expiring 01/01/07............ 2,000 0
Wam!net Inc., expiring 01/01/08................. 4,200 0
--------------
3,037,712
--------------
TOTAL WARRANTS
(cost $618,277)............................................................................. 3,393,856
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $696,253,520)......................................................................... 696,253,520
--------------
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT
SHORT-TERM INVESTMENT -- 0.9% RATE DATE (000)
------ -------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account.............. 5.715% 07/01/98 $ 6,459 6,459,000
--------------
(cost $6,459,000; Note 5)
TOTAL INVESTMENTS -- 98.9%
(cost $702,712,520; Note 6)................................................... 701,500,808
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.1%................................... 8,101,823
--------------
NET ASSETS -- 100.0%............................................................ $ 709,602,631
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
LP Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities
(a) Non-income producing security
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $4,059,508. The aggregate value, $4,201,717 is approximately
0.6% of net assets.
(c) Indicates a fair valued security.
(d) Represents issuer in default on interest payments; non-income producing
security.
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE>
STOCK INDEX PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 96.2%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.7%
Aeroquip-Vickers, Inc........................... 9,500 $ 554,562
AlliedSignal, Inc............................... 188,200 8,351,375
B.F. Goodrich Co................................ 23,700 1,176,112
Boeing Co....................................... 332,436 14,814,179
General Dynamics Corp........................... 42,100 1,957,650
Lockheed Martin Corp............................ 64,749 6,855,300
Northrop Grumman Corp........................... 21,900 2,258,437
Parker-Hannifin Corp............................ 37,525 1,430,641
Raytheon Co. (Class "B" Stock).................. 113,018 6,682,189
United Technologies Corp........................ 77,300 7,150,250
--------------
51,230,695
--------------
AIRLINES -- 0.4%
AMR Corp. (a)................................... 60,600 5,044,950
Delta Air Lines, Inc............................ 25,100 3,244,175
Southwest Airlines Co........................... 72,900 2,159,662
US Airways Group, Inc. (a)...................... 30,800 2,440,900
--------------
12,889,687
--------------
APPAREL -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 24,700 819,731
Nike, Inc. (Class "B" Stock).................... 97,400 4,742,162
Reebok International Ltd. (a)................... 18,600 514,987
--------------
6,076,880
--------------
AUTOS - CARS & TRUCKS -- 2.0%
Chrysler Corp................................... 216,100 12,182,637
Cummins Engine Co., Inc......................... 12,200 625,250
Dana Corp....................................... 34,600 1,851,100
Echlin, Inc..................................... 21,300 1,045,031
Ford Motor Co................................... 401,300 23,676,700
General Motors Corp............................. 227,300 15,186,481
Genuine Parts Co................................ 58,625 2,026,227
Johnson Controls, Inc........................... 27,500 1,572,656
Navistar International Corp. (a)................ 23,400 675,675
PACCAR, Inc..................................... 26,660 1,392,985
TRW, Inc........................................ 41,200 2,250,550
--------------
62,485,292
--------------
BANKS AND SAVINGS & LOANS -- 8.2%
Ahmanson (H.F.) & Co............................ 36,100 2,563,100
Banc One Corp................................... 232,483 12,975,457
Bank of New York Co., Inc....................... 124,900 7,579,869
BankAmerica Corp................................ 230,696 19,940,785
BankBoston Corp................................. 97,200 5,406,750
Bankers Trust Corp.............................. 32,600 3,783,637
BB&T Corp....................................... 47,300 3,198,662
Chase Manhattan Corp............................ 282,794 21,350,947
Citicorp........................................ 152,200 22,715,850
Comerica, Inc................................... 51,950 3,441,687
First Chicago NBD Corp.......................... 97,115 8,606,817
First Union Corp................................ 321,478 18,726,093
Fleet Financial Group, Inc...................... 92,800 7,748,800
Golden West Financial Corp...................... 18,900 2,009,306
Huntington Bancshares, Inc...................... 63,000 2,110,500
KeyCorp......................................... 145,600 5,187,000
Mellon Bank Corp................................ 85,100 5,925,087
Mercantile Bancorporation, Inc.................. 43,600 2,196,350
Morgan (J.P.) & Co., Inc........................ 58,850 6,892,806
National City Corp.............................. 109,600 7,781,600
NationsBank Corp................................ 317,476 24,286,914
Northern Trust Corp............................. 37,600 2,867,000
Norwest Corp.................................... 250,400 9,358,700
PNC Bank Corp................................... 101,200 5,445,825
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Providian Financial Corp........................ 31,900 2,506,144
Republic New York Corp.......................... 36,400 $ 2,290,925
Summit Bancorp.................................. 58,100 2,759,750
Suntrust Banks, Inc............................. 70,300 5,716,269
Synovus Financial Corp.......................... 86,100 2,044,875
U.S. Bancorp.................................... 245,626 10,561,918
Wachovia Corp................................... 68,100 5,754,450
Wells Fargo & Co................................ 28,866 10,651,554
--------------
254,385,427
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................... 49,500 1,797,469
Omnicom Group, Inc.............................. 54,300 2,708,212
--------------
4,505,681
--------------
CHEMICALS -- 1.9%
Air Products & Chemicals, Inc................... 77,600 3,104,000
Dow Chemical Co................................. 75,700 7,319,244
Du Pont (E.I.) de Nemours & Co.................. 376,500 28,096,312
Eastman Chemical Co............................. 25,900 1,612,275
FMC Corp. (a)................................... 12,100 825,069
Hercules, Inc................................... 31,800 1,307,775
Monsanto Co..................................... 196,900 11,001,787
Nalco Chemical Co............................... 22,700 797,337
Rohm & Haas Co.................................. 20,200 2,099,537
Sigma-Aldrich Corp.............................. 33,400 1,173,175
Union Carbide Corp.............................. 41,600 2,220,400
--------------
59,556,911
--------------
CHEMICALS - SPECIALTY -- 0.2%
Engelhard Corp.................................. 46,975 951,244
Great Lakes Chemical Corp....................... 20,200 796,637
Morton International, Inc....................... 42,400 1,060,000
Octel Corp...................................... 4,750 94,406
Praxair, Inc.................................... 52,600 2,462,337
Raychem Corp.................................... 27,400 810,012
W.R. Grace & Co................................. 23,900 407,794
--------------
6,582,430
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp. (a)............................... 276,718 5,776,488
Deluxe Corp..................................... 26,500 949,031
Moore Corp. Ltd................................. 27,900 369,675
--------------
7,095,194
--------------
COMPUTER SERVICES -- 4.6%
3Com Corp. (a).................................. 117,100 3,593,506
Adobe Systems, Inc.............................. 23,200 984,550
Autodesk, Inc................................... 15,500 598,687
Automatic Data Processing, Inc.................. 99,000 7,214,625
Bay Networks, Inc. (a).......................... 72,000 2,322,000
Cabletron Systems, Inc. (a)..................... 52,500 705,469
Ceridian Corp. (a).............................. 24,100 1,415,875
Computer Associates International, Inc.......... 181,443 10,081,427
Computer Sciences Corp. (a)..................... 51,300 3,283,200
EMC Corp. (a)................................... 164,700 7,380,619
First Data Corp................................. 142,700 4,753,694
Microsoft Corp. (a)............................. 816,600 88,499,025
Novell, Inc. (a)................................ 114,900 1,464,975
Oracle Corp. (a)................................ 324,887 7,980,037
Parametric Technology Corp. (a)................. 84,400 2,289,350
Silicon Graphics, Inc. (a)...................... 60,600 734,775
--------------
143,301,814
--------------
COMPUTERS -- 4.4%
Apple Computer, Inc. (a)........................ 44,900 1,288,069
Cisco Systems, Inc. (a)......................... 338,100 31,126,331
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Compaq Computer Corp............................ 547,670 15,540,122
Data General Corp. (a).......................... 15,500 $ 231,531
Dell Computer Corp. (a)......................... 216,700 20,112,469
Gateway 2000, Inc. (a).......................... 51,900 2,627,437
Hewlett-Packard Co.............................. 346,700 20,758,662
International Business Machines Corp............ 317,100 36,407,044
Seagate Technology, Inc. (a).................... 79,600 1,895,475
Sun Microsystems, Inc. (a)...................... 125,800 5,464,437
--------------
135,451,577
--------------
CONSTRUCTION -- 0.1%
Centex Corp..................................... 19,400 732,350
Fluor Corp...................................... 27,800 1,417,800
Foster Wheeler Corp............................. 13,000 278,687
Pulte Corp...................................... 14,200 424,225
--------------
2,853,062
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 9,700 389,819
Bemis Co., Inc.................................. 17,800 727,575
Crown Cork & Seal Co., Inc...................... 43,400 2,061,500
Owens-Illinois, Inc. (a)........................ 51,700 2,313,575
Sealed Air Corp. (a)............................ 27,010 992,617
Stone Container Corp. (a)....................... 33,266 519,781
--------------
7,004,867
--------------
COSMETICS & SOAPS -- 1.8%
Alberto Culver Co. (Class "B" Stock)............ 18,700 542,300
Avon Products, Inc.............................. 44,000 3,410,000
Colgate-Palmolive Co............................ 98,300 8,650,400
International Flavors & Fragrances, Inc......... 35,700 1,550,719
Procter & Gamble Co............................. 446,904 40,696,195
--------------
54,849,614
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.1%
Loews Corp...................................... 38,400 3,345,600
Phillip Morris Co., Inc......................... 807,900 31,811,062
--------------
35,156,662
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 36,800 1,978,000
Pitney Bowes, Inc............................... 96,400 4,639,250
Unisys Corp. (a)................................ 82,300 2,324,975
Xerox Corp...................................... 108,346 11,010,662
--------------
19,952,887
--------------
DIVERSIFIED OPERATIONS -- 3.4%
Cognizant Corp.................................. 54,360 3,424,680
Fortune Brands, Inc............................. 57,800 2,221,687
General Electric Capital Corp................... 1,088,800 99,080,800
--------------
104,727,167
--------------
DRUGS AND MEDICAL SUPPLIES -- 10.7%
Abbott Laboratories............................. 508,500 20,784,937
Allergan, Inc................................... 21,700 1,006,337
ALZA Corp. (a).................................. 28,400 1,228,300
American Home Products Corp..................... 432,700 22,392,225
Amgen, Inc. (a)................................. 87,100 5,694,162
Bard (C.R.), Inc................................ 18,600 707,962
Bausch & Lomb, Inc.............................. 18,100 907,262
Baxter International, Inc....................... 93,200 5,015,325
Becton, Dickinson & Co.......................... 40,900 3,174,862
Biomet, Inc..................................... 36,000 1,190,250
Boston Scientific Corp. (a)..................... 65,100 4,662,787
Bristol-Myers Squibb Co......................... 331,080 38,053,507
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cardinal Health, Inc............................ 36,200 $ 3,393,750
Eli Lilly & Co.................................. 369,200 24,390,275
Guidant Corp.................................... 50,100 3,572,756
Johnson & Johnson............................... 447,600 33,010,500
Mallinckrodt, Inc............................... 23,300 691,719
Medtronic, Inc.................................. 155,900 9,938,625
Merck & Co., Inc................................ 398,950 53,359,562
Pfizer, Inc..................................... 433,200 47,083,425
Pharmacia & Upjohn, Inc......................... 169,325 7,810,116
Schering-Plough Corp............................ 243,600 22,319,850
St. Jude Medical, Inc. (a)...................... 29,700 1,093,331
United States Surgical Corp..................... 24,600 1,122,375
Warner-Lambert Co............................... 272,000 18,870,000
--------------
331,474,200
--------------
ELECTRONICS -- 3.0%
Advanced Micro Devices, Inc. (a)................ 47,200 805,350
AMP Inc......................................... 72,944 2,507,450
Applied Materials, Inc. (a)..................... 122,600 3,616,700
EG&G, Inc....................................... 14,700 441,000
Emerson Electric Co............................. 148,000 8,935,500
Grainger (W.W.), Inc............................ 32,800 1,633,850
Harris Corp..................................... 26,600 1,188,687
Honeywell, Inc.................................. 42,200 3,526,337
Intel Corp...................................... 557,700 41,339,512
KLA-Tencor Corp. (a)............................ 27,300 755,869
LSI Logic Corp. (a)............................. 46,600 1,074,712
Micron Technology, Inc. (a)..................... 70,000 1,736,875
Motorola, Inc................................... 198,100 10,412,631
Perkin-Elmer Corp............................... 15,700 976,344
Rockwell International Corp..................... 67,200 3,229,800
Tektronix, Inc.................................. 17,200 608,450
Texas Instruments, Inc.......................... 129,700 7,563,131
Thomas & Betts Corp............................. 17,600 866,800
--------------
91,218,998
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Browning-Ferris Industries, Inc................. 65,000 2,258,750
--------------
FINANCIAL SERVICES -- 5.3%
American Express Co............................. 154,400 17,601,600
Associates First Capital Corp................... 115,633 8,889,287
Bear Stearns Companies, Inc..................... 24,000 1,365,000
Beneficial Corp................................. 17,400 2,665,462
Capital One Financial Corp...................... 14,000 1,738,625
Countrywide Credit Industries, Inc.............. 36,400 1,847,300
Federal Home Loan Mortgage Corp................. 231,700 10,904,381
Federal National Mortgage Association........... 352,600 21,420,450
Fifth Third Bancorp............................. 80,000 5,040,000
Franklin Resource, Inc.......................... 84,300 4,552,200
Green Tree Financial Corp....................... 46,000 1,969,375
H & R Block, Inc................................ 34,300 1,444,887
Household International, Inc.................... 106,200 5,283,450
Lehman Brothers Holdings, Inc................... 37,400 2,900,837
MBNA Corp....................................... 166,612 5,498,196
Merrill Lynch & Co., Inc........................ 113,200 10,442,700
Morgan Stanley, Dean Witter, Discover & Co...... 197,405 18,037,882
Schwab (Charles) Corp........................... 87,200 2,834,000
SLM Holding Corp................................ 38,000 1,862,000
State Street Corp............................... 53,500 3,718,250
Sunamerica, Inc................................. 65,300 3,750,669
Transamerica Corp............................... 20,600 2,371,575
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Travelers Group, Inc............................ 381,409 $ 23,122,921
Washington Mutual, Inc.......................... 128,280 5,572,162
--------------
164,833,209
--------------
FOOD & BEVERAGES -- 5.6%
Anheuser-Busch Companies, Inc................... 163,000 7,691,562
Archer-Daniels-Midland Co....................... 188,737 3,656,779
Bestfoods....................................... 96,000 5,574,000
Brown-Forman Corp. (Class "B" Stock)............ 23,000 1,477,750
Campbell Soup Co................................ 152,400 8,096,250
Coca-Cola Co.................................... 822,600 70,332,300
ConAgra, Inc.................................... 157,300 4,984,444
Coors (Adolph) Co. (Class "B" Stock)............ 12,600 428,400
General Mills, Inc.............................. 52,400 3,582,850
Giant Food, Inc. (Class "A" Stock).............. 20,600 887,087
Heinz (H.J.) & Co............................... 121,250 6,805,156
Hershey Foods Corp.............................. 47,900 3,305,100
Kellogg Co...................................... 137,100 5,149,819
PepsiCo, Inc.................................... 504,300 20,770,856
Pioneer Hi-Bred International, Inc.............. 81,300 3,363,787
Quaker Oats Co.................................. 46,100 2,532,619
Ralston-Ralston Purina Group.................... 35,740 4,174,879
Sara Lee Corp................................... 157,500 8,810,156
Seagram Co., Ltd................................ 119,100 4,875,656
Sysco Corp...................................... 113,400 2,905,875
Wrigley (William) Jr. Co........................ 38,400 3,763,200
--------------
173,168,525
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp.............................. 18,486 605,416
Champion International Corp..................... 32,400 1,593,675
Fort James Corp................................. 70,300 3,128,350
Georgia-Pacific Corp............................ 30,800 1,815,275
International Paper Co.......................... 100,534 4,322,962
Louisiana-Pacific Corp.......................... 36,200 660,650
Mead Corp....................................... 34,700 1,101,725
Potlatch Corp................................... 9,800 411,600
Temple-Inland, Inc.............................. 18,600 1,002,075
Union Camp Corp................................. 22,800 1,131,450
Westvaco Corp................................... 35,100 991,575
Weyerhaeuser Co................................. 65,900 3,043,756
Willamette Industries, Inc...................... 36,600 1,171,200
--------------
20,979,709
--------------
GAS PIPELINES -- 0.5%
Columbia Energy Group........................... 27,750 1,543,594
Consolidated Natural Gas Co..................... 31,700 1,866,337
Enron Corp...................................... 109,200 5,903,625
Peoples Energy Corp............................. 11,200 432,600
Sempra Energy (a)............................... 41,505 1,151,760
Sonat, Inc...................................... 36,200 1,398,225
Williams Companies, Inc......................... 135,800 4,583,250
--------------
16,879,391
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.................... 215,998 6,290,942
Healthsouth Corp. (a)........................... 129,700 3,461,369
Humana, Inc. (a)................................ 54,100 1,687,244
Manor Care, Inc................................. 21,450 824,484
Service Corp. International..................... 83,600 3,584,350
Shared Medical Systems Corp..................... 8,800 646,250
Tenet Healthcare Corp. (a)...................... 102,800 3,212,500
--------------
19,707,139
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 1.1%
Clorox Co....................................... 34,600 $ 3,299,975
Gillette Co..................................... 372,200 21,099,087
Kimberly-Clark Corp............................. 185,188 8,495,499
--------------
32,894,561
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 13,400 902,825
Fleetwood Enterprises, Inc...................... 11,600 464,000
Kaufman & Broad Home Corp....................... 12,966 411,670
Lowe's Companies, Inc........................... 115,200 4,672,800
Masco Corp...................................... 54,800 3,315,400
Maytag Corp..................................... 32,100 1,584,938
Owens Corning................................... 18,800 767,275
Stanley Works................................... 29,100 1,209,469
Tupperware Corp................................. 19,900 559,688
Whirlpool Corp.................................. 25,400 1,746,250
--------------
15,634,315
--------------
INSURANCE -- 3.8%
Aetna, Inc...................................... 49,012 3,731,039
Allstate Corp................................... 142,694 13,065,419
American General Corp........................... 84,786 6,035,703
American International Group, Inc............... 233,455 34,084,430
Aon Corp........................................ 55,950 3,930,488
Chubb Corp...................................... 56,300 4,525,113
CIGNA Corp...................................... 73,900 5,099,100
Cincinnati Financial Corp....................... 55,500 2,129,813
Conseco, Inc.................................... 61,800 2,889,150
General Re Corp................................. 26,150 6,629,025
Hartford Financial Services Group, Inc.......... 39,200 4,483,500
Jefferson-Pilot Corp............................ 35,212 2,040,095
Lincoln National Corp........................... 33,800 3,088,475
Marsh & McLennan Companies, Inc................. 84,300 5,094,881
MBIA, Inc....................................... 32,400 2,425,950
MGIC Investment Corp............................ 37,800 2,156,963
Progressive Corp................................ 24,000 3,384,000
SAFECO Corp..................................... 47,400 2,153,738
St. Paul Companies, Inc......................... 76,910 3,235,027
Torchmark Corp.................................. 47,100 2,154,825
United Healthcare Corp.......................... 62,200 3,949,700
UNUM Corp....................................... 46,200 2,564,100
--------------
118,850,534
--------------
LEISURE -- 0.9%
Brunswick Corp.................................. 32,800 811,800
Harrah's Entertainment, Inc. (a)................ 34,750 807,938
King World Productions, Inc. (a)................ 25,100 640,050
Mirage Resorts, Inc. (a)........................ 58,800 1,253,175
Walt Disney Co.................................. 225,867 23,730,152
--------------
27,243,115
--------------
LODGING -- 0.2%
Hilton Hotels Corp.............................. 82,700 2,356,950
Marriott International, Inc. (Class "A"
Stock)........................................ 86,000 2,784,250
--------------
5,141,200
--------------
MACHINERY -- 0.8%
Briggs & Stratton Corp.......................... 7,600 284,525
Case Corp....................................... 24,900 1,201,425
Caterpillar, Inc................................ 123,900 6,551,213
Cincinnati Milacron, Inc........................ 12,300 299,044
Cooper Industries, Inc.......................... 40,300 2,213,981
Deere & Co...................................... 83,600 4,420,350
Dover Corp...................................... 74,100 2,537,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Eaton Corp...................................... 25,000 $ 1,943,750
Harnischfeger Industries, Inc................... 15,800 447,338
Ingersoll-Rand Co............................... 54,750 2,412,422
Snap-On, Inc.................................... 20,400 739,500
Timken Co....................................... 21,100 650,144
--------------
23,701,617
--------------
MANUFACTURING -- 0.6%
Illinois Tool Works, Inc........................ 82,900 5,528,394
Tyco International, Ltd......................... 192,500 12,127,500
--------------
17,655,894
--------------
MEDIA -- 2.8%
CBS Corp........................................ 236,000 7,493,000
Clear Channel Communications, Inc. (a).......... 40,900 4,463,213
Comcast Corp. (Special Class "A" Stock)......... 118,400 4,806,300
Donnelley (R.R.) & Sons Co...................... 48,600 2,223,450
Dow Jones & Co., Inc............................ 31,600 1,761,700
Dun & Bradstreet Corp........................... 57,260 2,068,518
Gannett Co., Inc................................ 94,200 6,694,088
HBO & Co........................................ 141,300 4,980,825
Interpublic Group of Companies, Inc............. 41,700 2,530,669
Knight-Ridder, Inc.............................. 27,100 1,492,194
McGraw-Hill, Inc................................ 33,200 2,707,875
Mediaone Group, Inc............................. 202,200 8,884,163
Meredith Corp................................... 17,500 821,406
New York Times Co. (Class "A" Stock)............ 32,000 2,536,000
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 169,500 6,515,156
Time Warner, Inc................................ 194,140 16,586,836
Times Mirror Co. (Class "A" Stock).............. 30,000 1,886,250
Tribune Co...................................... 40,700 2,800,669
Viacom, Inc. (Class "B" Stock) (a).............. 117,667 6,854,103
--------------
88,106,415
--------------
METALS - FERROUS -- 0.2%
Allegheny Teledyne, Inc......................... 65,680 1,502,430
Armco, Inc. (a)................................. 26,700 170,213
Bethlehem Steel Corp. (a)....................... 43,500 541,031
Inland Steel Industries, Inc.................... 16,700 470,731
Nucor Corp...................................... 30,200 1,389,200
USX-U.S. Steel Group, Inc....................... 28,540 941,820
Worthington Industries, Inc..................... 33,400 503,088
--------------
5,518,513
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum, Ltd............................. 75,950 2,098,119
Aluminum Company of America..................... 57,500 3,791,406
Cyprus Amax Minerals Co......................... 30,100 398,825
Inco Ltd........................................ 55,100 750,738
Reynolds Metals Co.............................. 25,100 1,404,031
--------------
8,443,119
--------------
MINERAL RESOURCES -- 0.2%
ASARCO, Inc..................................... 14,200 315,950
Burlington Resources, Inc....................... 59,817 2,575,870
Homestake Mining Co............................. 71,400 740,775
Phelps Dodge Corp............................... 19,900 1,138,031
--------------
4,770,626
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.5%
Crane Co........................................ 15,450 750,291
Ecolab, Inc..................................... 42,800 1,326,800
General Signal Corp............................. 16,962 610,632
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ITT Industries, Inc............................. 39,100 $ 1,461,363
Laidlaw, Inc.................................... 106,500 1,297,969
Millipore Corp.................................. 13,900 378,775
NACCO Industries, Inc. (Class "A" Stock)........ 2,700 348,975
Pall Corp....................................... 41,200 844,600
PPG Industries, Inc............................. 58,700 4,083,319
Textron, Inc.................................... 55,100 3,949,981
Thermo Electron Corp. (a)....................... 53,000 1,811,938
--------------
16,864,643
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.4%
American Greetings Corp. (Class "A" Stock)...... 24,300 1,237,781
Black & Decker Corp............................. 32,300 1,970,300
Corning, Inc.................................... 77,400 2,689,650
Eastman Kodak Co................................ 108,700 7,941,894
Jostens, Inc.................................... 12,200 294,325
Minnesota Mining & Manufacturing Co............. 135,700 11,152,844
Polaroid Corp................................... 15,100 536,994
Rubbermaid, Inc................................. 51,300 1,702,519
Unilever N.V. (N.Y. Shares), ADR, (United
Kingdom)...................................... 212,500 16,774,219
--------------
44,300,526
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.1%
Tenneco, Inc.................................... 55,800 2,123,888
--------------
OIL & GAS -- 6.2%
Amerada Hess Corp............................... 30,700 1,667,394
Amoco Corp...................................... 324,060 13,488,998
Anadarko Petroleum Corp......................... 20,400 1,370,625
Ashland, Inc.................................... 24,700 1,275,138
Atlantic Richfield Co........................... 106,670 8,333,594
Chevron Corp.................................... 218,100 18,115,931
Coastal Corp.................................... 34,600 2,415,513
Eastern Enterprises............................. 6,400 274,400
Exxon Corp...................................... 820,700 58,526,169
Kerr-McGee Corp................................. 15,900 920,213
Mobil Corp...................................... 260,700 19,976,138
NICOR, Inc...................................... 15,900 637,988
Pennzoil Co..................................... 16,000 810,000
Phillips Petroleum Co........................... 87,200 4,201,950
Royal Dutch Petroleum Co........................ 713,600 39,114,200
Sun Co., Inc.................................... 32,600 1,265,288
Texaco, Inc..................................... 181,582 10,838,176
Union Pacific Resources Group, Inc.............. 84,456 1,483,259
Unocal Corp..................................... 83,000 2,967,250
USX-Marathon Group.............................. 96,100 3,297,431
--------------
190,979,655
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp....................... 116,800 3,153,600
Oryx Energy Co. (a)............................. 34,500 763,313
--------------
3,916,913
--------------
OIL & GAS SERVICES -- 0.8%
Apache Corp..................................... 32,200 1,014,300
Baker Hughes, Inc............................... 55,700 1,925,131
Dresser Industries, Inc......................... 58,500 2,577,656
Halliburton Co.................................. 87,200 3,885,850
Helmerich & Payne, Inc.......................... 15,800 351,550
McDermott International, Inc.................... 20,300 699,081
ONEOK, Inc...................................... 9,800 390,775
Rowan Companies, Inc. (a)....................... 28,200 548,138
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Schlumberger Ltd................................ 165,300 $ 11,292,056
Western Atlas, Inc. (a)......................... 17,900 1,519,263
--------------
24,203,800
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 123,200 2,363,900
Battle Mountain Gold Co......................... 75,500 448,281
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 65,000 987,188
Newmont Mining Corp............................. 51,503 1,216,758
Placer Dome, Inc................................ 84,400 991,700
--------------
6,007,827
--------------
RAILROADS -- 0.5%
Burlington Northern Santa Fe Corp............... 52,042 5,109,874
CSX Corp........................................ 73,512 3,344,796
Norfolk Southern Corp........................... 125,100 3,729,544
Union Pacific Corp.............................. 81,800 3,609,425
--------------
15,793,639
--------------
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 50,300 798,513
McDonald's Corp................................. 229,500 15,835,500
Tricon Global Restaurants, Inc. (a)............. 51,050 1,617,647
Wendy's International, Inc...................... 44,000 1,034,000
--------------
19,285,660
--------------
RETAIL -- 5.4%
Abercrombie & Fitch Co.(Class "A" Stock)........ 1,212 53,328
Albertson's, Inc................................ 81,700 4,233,081
American Stores Co.............................. 91,800 2,220,413
AutoZone, Inc. (a).............................. 50,900 1,625,619
Circuit City Stores, Inc........................ 33,200 1,556,250
Consolidated Stores Corp. (a)................... 34,600 1,254,250
Costco Companies, Inc. (a)...................... 70,666 4,456,375
CVS Corp........................................ 126,000 4,906,125
Dayton-Hudson Corp.............................. 144,584 7,012,324
Dillard's, Inc.................................. 37,050 1,535,259
Federated Department Stores, Inc. (a)........... 69,300 3,729,206
Great Atlantic & Pacific Tea Co., Inc........... 12,200 403,363
Harcourt General, Inc........................... 23,206 1,380,757
Home Depot, Inc................................. 243,423 20,219,323
IKON Office Solutions, Inc...................... 45,576 663,701
J.C. Penney Co., Inc............................ 82,700 5,980,244
Kmart Corp. (a)................................. 160,300 3,085,775
Kroger Co. (a).................................. 84,200 3,610,075
Liz Claiborne, Inc.............................. 23,000 1,201,750
Longs Drug Stores, Inc.......................... 11,700 337,838
May Department Stores Co........................ 76,700 5,023,850
Mercantile Stores Co., Inc...................... 12,100 955,144
Newell Co....................................... 52,500 2,615,156
Nordstrom, Inc.................................. 25,600 1,977,600
Pep Boys - Manny, Moe & Jack.................... 21,300 403,369
Rite Aid Corp................................... 87,200 3,275,450
Sears, Roebuck & Co............................. 129,900 7,932,019
Sherwin-Williams Co............................. 58,600 1,941,125
Supervalu, Inc.................................. 20,000 887,500
Tandy Corp...................................... 33,830 1,795,104
The Gap, Inc.................................... 131,950 8,131,419
The Limited, Inc................................ 88,648 2,936,465
TJX Companies, Inc.............................. 107,400 2,591,025
Toys 'R' Us, Inc. (a)........................... 92,750 2,185,422
Venator Group, Inc. (a)......................... 44,400 849,150
Wal-Mart Stores, Inc............................ 747,500 45,410,625
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Walgreen Co..................................... 163,500 $ 6,754,594
Winn-Dixie Stores, Inc.......................... 49,200 2,518,425
--------------
167,648,498
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 26,300 542,438
Goodyear Tire & Rubber Co....................... 52,100 3,357,194
--------------
3,899,632
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 53,000 698,938
--------------
TELECOMMUNICATIONS -- 8.3%
Airtouch Communications, Inc. (a)............... 187,800 10,974,563
Alltel Corp..................................... 61,600 2,864,400
Ameritech Corp.................................. 364,900 16,374,888
Andrew Corp. (a)................................ 28,512 514,998
Ascend Communications, Inc. (a)................. 62,000 3,072,875
AT&T Corp....................................... 539,973 30,845,958
Bell Atlantic Corp.............................. 516,390 23,560,294
BellSouth Corp.................................. 330,400 22,178,100
DSC Communications Corp. (a).................... 38,100 1,143,000
Frontier Corp................................... 54,300 1,710,450
General Instrument Corp. (a).................... 47,700 1,296,844
GTE Corp........................................ 318,720 17,728,800
Lucent Technologies, Inc........................ 434,720 36,163,270
MCI Communications Corp......................... 237,600 13,810,500
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 88,700 2,206,413
Northern Telecom, Ltd........................... 172,600 9,795,050
SBC Communications, Inc......................... 610,286 24,411,440
Scientific-Atlanta, Inc......................... 26,700 677,513
Sprint Corp..................................... 142,500 10,046,250
Tellabs, Inc. (a)............................... 60,400 4,326,150
US West, Inc.................................... 168,822 7,934,638
WorldCom, Inc. (a).............................. 340,000 16,468,750
--------------
258,105,144
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 14,400 732,600
Russell Corp.................................... 11,500 347,156
Springs Industries, Inc......................... 6,600 304,425
VF Corp......................................... 40,236 2,072,154
--------------
3,456,335
--------------
TOBACCO -- 0.1%
UST, Inc........................................ 60,700 1,638,900
--------------
TOYS -- 0.2%
Hasbro, Inc..................................... 44,900 1,765,131
Mattel, Inc..................................... 96,881 4,099,277
--------------
5,864,408
--------------
TRUCKING/SHIPPING -- 0.1%
FDX Corp........................................ 48,820 3,063,455
Ryder System, Inc............................... 25,300 798,531
--------------
3,861,986
--------------
UTILITY - ELECTRIC -- 2.3%
Ameren Corp..................................... 44,400 1,764,900
American Electric Power Co., Inc................ 62,200 2,822,325
Baltimore Gas & Electric Co..................... 49,650 1,542,253
Carolina Power & Light Co....................... 49,300 2,138,388
Central & South West Corp....................... 69,600 1,870,500
CINergy Corp.................................... 52,739 1,845,865
Consolidated Edison, Inc........................ 77,300 3,560,631
Dominion Resources, Inc......................... 63,350 2,581,513
DTE Energy Co................................... 47,200 1,905,700
Duke Energy Corp................................ 119,431 7,076,287
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Edison International............................ 125,400 $ 3,707,138
Entergy Corp.................................... 79,800 2,294,250
FirstEnergy Corp. (a)........................... 76,100 2,340,075
FPL Group, Inc.................................. 59,900 3,773,700
GPU, Inc........................................ 41,700 1,576,781
Houston Industries, Inc......................... 96,210 2,970,484
Niagara Mohawk Power Corp. (a).................. 45,300 676,669
Northern States Power Co........................ 50,000 1,431,250
Pacific Gas & Electric Co....................... 143,200 4,519,750
PacifiCorp...................................... 97,400 2,203,675
PECO Energy Co.................................. 72,600 2,119,013
PP&L Resources, Inc............................. 55,000 1,247,813
Public Service Enterprise Group, Inc............ 76,000 2,617,250
Southern Co..................................... 229,700 6,359,819
Texas Utilities Co.............................. 81,706 3,401,012
Unicom Corp..................................... 71,800 2,517,488
--------------
70,864,529
--------------
WASTE MANAGEMENT -- 0.2%
Waste Management, Inc........................... 154,600 5,411,000
--------------
TOTAL COMMON STOCKS
(cost $1,610,232,614).......................................... 2,981,511,598
--------------
PREFERRED STOCKS
MISCELLANEOUS - INDUSTRIAL
Sealed Air Corp. (Series A)..................... 1 21
--------------
(cost $19)
TOTAL LONG-TERM INVESTMENTS
(cost $1,610,232,633).......................................... 2,981,511,619
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 3.9% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.8%
Joint Repurchase
Agreement Account,
5.715%, 07/01/98.............................. $ 116,704 $ 116,704,000
--------------
U. S. GOVERNMENT OBLIGATION -- 0.1%
United States Treasury Bill,
5.05%, 09/17/98 (b)........................... 4,500 4,452,435
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $121,154,772)............................................ 121,156,435
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $1,731,387,405; Note 6).................................. 3,102,668,054
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C)...................
(832,375)
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)............
(2,685,996)
--------------
NET ASSETS -- 100.0%............................................. $3,099,149,683
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<S> <C> <C> <C> <C> <C>
Long Position:
397 S&P 500 Index Sep 98 $ 3,114,176 $ 6,592,375 $ 3,478,199
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
EQUITY INCOME PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 95.5%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS -- 90.9% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
United Industrial Corp.......................... 32,300 $ 419,900
--------------
AIRLINES -- 4.0%
AMR Corp. (a)................................... 947,000 78,837,750
Trans World Airlines, Inc....................... 1,744,900 18,103,337
--------------
96,941,087
--------------
AUTOS - CARS & TRUCKS -- 6.5%
Chrysler Corp................................... 1,426,034 80,392,667
Ford Motor Co................................... 762,600 44,993,400
General Motors Corp............................. 494,000 33,005,375
--------------
158,391,442
--------------
CHEMICALS -- 5.2%
Dow Chemical Co................................. 1,029,600 99,549,450
Millennium Chemicals, Inc....................... 841,498 28,505,745
--------------
128,055,195
--------------
COMPUTERS -- 0.2%
Intergraph Corp. (a)............................ 619,900 5,307,894
--------------
CONSUMER SERVICES
Petroleum Heat and Power, Inc. (Class "A"
Stock)........................................ 48,200 96,400
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.4%
Eastman Kodak Co................................ 222,300 16,241,794
Gibson Greetings Inc. (a)....................... 724,000 18,100,000
--------------
34,341,794
--------------
ELECTRICAL EQUIPMENT -- 0.9%
Kuhlman Corp.................................... 571,200 22,598,100
--------------
ELECTRONICS -- 0.9%
Esterline Technologies Corp. (a)................ 562,400 11,564,350
Instron Corp.................................... 157,900 2,911,281
Newport Corp.................................... 313,000 6,181,750
--------------
20,657,381
--------------
FINANCIAL SERVICES -- 10.8%
A.G. Edwards, Inc............................... 322,800 13,779,525
Associates First Capital Corp................... 199,866 15,364,699
Bear Stearns Companies, Inc..................... 946,851 53,852,151
Lehman Brothers Holdings, Inc................... 1,596,100 123,797,506
PaineWebber Group, Inc.......................... 1,294,700 55,510,262
Travelers Group, Inc............................ 29,300 1,776,312
--------------
264,080,455
--------------
FOREST PRODUCTS -- 4.0%
Fletcher Challenge Ltd., ADR, (Canada).......... 63,600 361,725
Georgia-Pacific Corp............................ 392,500 23,132,969
Longview Fibre Co............................... 1,000,000 14,250,000
Louisiana-Pacific Corp.......................... 1,311,900 23,942,175
Potlatch Corp................................... 209,300 8,790,600
Rayonier, Inc................................... 404,600 18,611,600
Weyerhaeuser Co................................. 200,000 9,237,500
--------------
98,326,569
--------------
GAS DISTRIBUTION -- 1.3%
British Gas PLC, ADR, (United Kingdom).......... 1,099,125 31,599,844
--------------
GAS PIPELINES -- 0.3%
Sonat, Inc...................................... 210,400 8,126,700
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSING RELATED -- 4.2%
Hanson, PLC, ADR, (United Kingdom).............. 2,026,550 $ 61,429,797
Kaufman & Broad Home Corp....................... 707,000 22,447,250
Ryland Group, Inc............................... 750,000 19,687,500
--------------
103,564,547
--------------
INSURANCE -- 3.1%
Marsh & McLennan Companies, Inc................. 822,600 49,715,887
Ohio Casualty Corp.............................. 387,500 17,146,875
Selective Insurance Group, Inc.................. 405,600 9,087,975
--------------
75,950,737
--------------
MEDIA -- 1.7%
CBS Corp........................................ 1,048,845 33,300,829
Dun & Bradstreet Corp........................... 199,500 7,206,937
--------------
40,507,766
--------------
METALS - FERROUS -- 2.6%
USX-U.S. Steel Group............................ 1,930,200 63,696,600
--------------
METALS - NON FERROUS -- 4.7%
Aluminum Company of America..................... 962,800 63,484,625
Kaiser Aluminum Corp. (a)....................... 271,872 2,599,776
Reynolds Metals Co.............................. 884,186 49,459,154
--------------
115,543,555
--------------
MISCELLANEOUS - INDUSTRIAL -- 1.3%
Nova Corp....................................... 1,867,200 21,589,500
Tenneco, Inc.................................... 232,300 8,841,919
Zeigler Coal Holdings Company................... 37,500 642,187
--------------
31,073,606
--------------
OIL & GAS -- 5.4%
Crestar Energy, Inc., ADR, (Canada) (a)......... 204,000 2,481,447
Elf Aquitaine SA, ADR, (France)................. 693,600 49,245,600
Occidental Petroleum Corp....................... 1,020,000 27,540,000
Pioneer Natural Resources Co.................... 1,866,717 44,567,868
USX-Marathon Group.............................. 235,200 8,070,300
--------------
131,905,215
--------------
OIL & GAS SERVICES -- 3.6%
McDermott International, Inc.................... 1,852,000 63,778,250
Quaker State Corp............................... 1,520,000 24,890,000
--------------
88,668,250
--------------
PRECIOUS METALS -- 0.3%
Ashanti Goldfields Co., Ltd..................... 715,131 5,810,439
Coeur D'Alene Mines Corp........................ 198,578 1,340,401
Echo Bay Mines, Ltd............................. 304,499 685,123
--------------
7,835,963
--------------
REAL ESTATE DEVELOPMENT -- 12.9%
Alexander Haagen Properties, Inc................ 428,400 6,452,775
Amli Residential Properties Trust............... 212,500 4,555,469
Bradley Real Estate, Inc........................ 109,800 2,319,525
Capital Automotive.............................. 590,000 8,370,625
CCA Prison Realty Trust......................... 637,900 19,535,687
Crescent Operating, Inc. (a).................... 155,150 2,637,550
Crescent Real Estate Equities, Inc.............. 1,823,300 61,308,462
Crown American Realty Trust..................... 1,150,400 11,144,500
Equity Inns, Inc................................ 204,000 2,690,250
Equity Office Properties Trust.................. 555,278 15,756,013
Equity Residential Properties Trust............. 1,604,200 76,099,238
Gables Residential Trust........................ 425,900 11,552,538
Glimcher Realty Trust........................... 522,700 10,159,981
Irvine Apartment Communities, Inc............... 395,600 11,447,675
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
JDN Realty Corp................................. 29,400 $ 937,125
JP Realty, Inc.................................. 85,700 2,019,306
Kimco Realty Corp............................... 57,350 2,351,350
Malan Realty Investors, Inc..................... 140,000 2,476,250
Manufactured Home Communities, Inc.............. 417,800 10,079,425
Pennsylvania Real Estate
Investment Trust.............................. 51,100 1,133,781
Security Capital Pacific Trust.................. 194,800 4,383,000
Simon Debartolo Group, Inc...................... 12,800 416,000
Sunstone Hotel Investors, Inc................... 162,300 2,160,619
TriNet Corporate Realty Trust, Inc.............. 170,000 5,780,000
Vornado Realty Trust............................ 785,600 31,178,500
Walden Residential Properties, Inc.............. 362,100 8,871,450
--------------
315,817,094
--------------
RETAIL -- 5.2%
Blair Corporation............................... 82,000 2,624,000
Heilig-Meyers, Co............................... 1,396,300 17,191,944
J.C. Penney Co., Inc............................ 785,200 56,779,775
The Limited, Inc................................ 1,534,700 50,836,938
--------------
127,432,657
--------------
STEEL -- 0.2%
AK Steel Holding Corp........................... 304,300 5,439,363
--------------
TELECOMMUNICATIONS -- 2.5%
Telecomunicacoes Brasileiras SA, ADR,
(Brazil)...................................... 359,600 39,263,825
Telefonos de Mexico SA, (Class "L" Stock), ADR,
(Mexico)...................................... 469,700 22,574,956
--------------
61,838,781
--------------
TEXTILES -- 0.8%
Garan, Inc...................................... 3,000 81,375
Kellwood Co..................................... 529,300 18,922,475
Oxford Industries, Inc.......................... 35,200 1,229,800
--------------
20,233,650
--------------
TOBACCO -- 3.5%
BAT Industries, PLC, ADR, (United Kingdom)...... 618,600 12,487,988
Phillip Morris Co., Inc......................... 333,100 13,115,813
RJR Nabisco Holdings Corp....................... 2,452,880 58,255,900
--------------
83,859,701
--------------
TRUCKING/SHIPPING -- 0.8%
Alexander & Baldwin, Inc........................ 293,550 8,549,644
Yellow Corp..................................... 561,000 10,413,563
--------------
18,963,207
--------------
UTILITY - ELECTRIC -- 1.3%
Cleco Corporation............................... 6,200 184,450
Entergy Corp.................................... 817,100 23,491,625
First Energy Corp. (a).......................... 24,965 767,674
Pacific Gas & Electric, Co...................... 244,800 7,726,500
--------------
32,170,249
--------------
WASTE MANAGEMENT -- 1.3%
Waste Management, Inc........................... 889,300 31,125,500
--------------
TOTAL COMMON STOCKS
(cost $1,633,011,919).................................................... 2,224,569,202
--------------
</TABLE>
<TABLE>
JUNE 30, 1998 (UNAUDITED)
VALUE
PREFERRED STOCKS -- 3.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
INTEGRATED PRODUCERS -- 0.1%
Unocal Corp. (Conv.) Series 6.25%............... 35,072 $ 1,900,464
--------------
METALS - FERROUS -- 0.9%
Bethlehem Steel Corp. (Cum. Conv.).............. 264,000 11,880,000
Rouge Steel..................................... 267,700 3,346,250
USX Capital Trust (Cum. Conv.).................. 116,900 5,625,812
--------------
20,852,062
--------------
METALS - NON FERROUS -- 0.1%
Hecla Mining Co. (Cum. Conv.), Series B......... 61,200 2,677,500
--------------
REAL ESTATE DEVELOPMENT -- 0.5%
Security Capital Pacific Trust (Cum. Conv.),
Series A...................................... 55,600 1,674,950
Union Pacific Capital Trust..................... 243,900 11,493,788
--------------
13,168,738
--------------
RETAIL -- 2.2%
Kmart Corp. (Cum. Conv.)........................ 778,900 54,523,000
--------------
TOTAL PREFERRED STOCKS
(cost $87,289,479)....................................................... 93,121,764
--------------
WARRANTS UNITS
-------------
CONSTRUCTION
Morrison Knudsen Corp.,
expiring 3/11/03.............................. 5,689 33,423
--------------
REAL ESTATE DEVELOPMENT
Security Capital Pacific Trust,
expiring 9/18/98.............................. 31,610 10,866
--------------
TOTAL WARRANTS
(cost $248,929).......................................................... 44,289
--------------
<CAPTION>
PRINCIPAL
CONVERTIBLE MOODY'S AMOUNT
BONDS -- 0.8% RATING (000)
------------ ---------
<S> <C> <C> <C>
EXPLORATION & PRODUCTION -- 0.1%
Oryx Energy Co.,
7.50%, 05/15/14............................... B2 $ 1,800 1,800,000
--------------
OIL & GAS SERVICES -- 0.2%
Baker Hughes, Inc.,
Zero Coupon, 05/05/08......................... A2 6,060 4,438,950
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Alexander Haagen Properties, Inc., Series A,
7.50%, 01/15/01............................... NR 610 588,650
7.50%, 01/15/01............................... NR 1,020 994,500
Malan Realty Investors, Inc.,
9.50%, 07/15/04............................... NR 3,000 3,071,250
--------------
4,654,400
--------------
RETAIL -- 0.3%
Charming Shoppes, Inc.,
7.50%, 07/15/06............................... B2 8,160 7,588,800
--------------
TOTAL CONVERTIBLE BONDS
(cost $18,504,082)....................................................... 18,482,150
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,739,054,409).................................................... 2,336,217,405
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 4.4% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Aggrement
Account, 5.715%, 07/01/98
(cost $108,947,000; Note 5)
$ 108,947 $ 108,947,000
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $1,848,001,409; Note 6).................................. 2,445,164,405
--------------
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.1%............................................ 1,868,966
--------------
NET ASSETS -- 100.0%............................................. $2,447,033,371
--------------
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
NR Not Rated by Moody's or Standard & Poor's.
(a) Non-income producing security.
EQUITY PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 80.6%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co..................................... 44,639 $ 2,572,322
--------------
AUTOS - CARS & TRUCKS -- 3.0%
Chrysler Corp................................... 981,720 55,344,465
General Motors Corp............................. 700,000 46,768,750
LucasVarity PLC (United Kingdom)................ 19,150,084 76,068,347
Navistar International Corp. (a)................ 395,200 11,411,400
PACCAR, Inc..................................... 279,400 14,598,650
--------------
204,191,612
--------------
BANKS AND SAVINGS & LOANS -- 5.8%
Bank of New York Co., Inc....................... 1,200,000 72,825,000
BankAmerica Corp................................ 698,000 60,333,375
Chase Manhattan Corp............................ 977,800 73,823,900
Mellon Bank Corp................................ 270,100 18,805,712
Mercantile Bankshares Corp...................... 419,400 14,600,362
Morgan (J.P.) & Co., Inc........................ 327,900 38,405,287
National City Corp.............................. 61,560 4,370,760
NationsBank Corp................................ 1,000,000 76,500,000
Republic New York Corp.......................... 450,000 28,321,875
--------------
387,986,271
--------------
CHEMICALS -- 2.8%
BOC Group, PLC ADR (United Kingdom)............. 800,000 21,700,000
Dow Chemical Co................................. 556,300 53,787,256
Eastman Chemical Co............................. 941,550 58,611,487
Potash Corp. of Saskatchewan Inc., (Canada)..... 380,000 28,713,750
Wellman, Inc.................................... 798,200 18,109,162
Witco Corp...................................... 268,800 7,862,400
--------------
188,784,055
--------------
COMPUTERS -- 2.8%
Compaq Computer Corp............................ 2,882,250 81,783,844
International Business Machines Corp............ 600,000 68,887,500
NCR Corp........................................ 100,000 3,250,000
Seagate Technology, Inc. (a).................... 1,426,500 33,968,531
--------------
187,889,875
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CONSTRUCTION & HOUSING -- 1.4%
American Standard Co., Inc. (a)................. 1,050,000 46,921,875
Centex Corp..................................... 1,200,000 45,300,000
--------------
92,221,875
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 5.1%
Gibson Greeting, Inc. (a)....................... 750,000 $ 18,750,000
Loews Corp...................................... 1,775,000 154,646,875
Phillip Morris Co., Inc......................... 2,025,000 79,734,375
RJR Nabisco Holdings Corp....................... 3,710,000 88,112,500
--------------
341,243,750
--------------
ELECTRONICS -- 2.5%
AMP Inc......................................... 1,885,000 64,796,875
Arrow Electronics, Inc. (a)..................... 1,442,200 31,367,850
Avnet, Inc...................................... 197,900 10,822,656
Gerber Scientific, Inc.......................... 419,800 9,550,450
Harris Corp..................................... 600,000 26,812,500
Hitachi Ltd. ADR................................ 399,500 25,767,750
--------------
169,118,081
--------------
FINANCIAL SERVICES -- 5.5%
American Express Co............................. 350,000 39,900,000
Lehman Brothers Holdings, Inc................... 849,800 65,912,612
Morgan Stanley, Dean Witter, Discover & Co...... 1,712,000 156,434,000
Travelers Group, Inc............................ 1,698,361 102,963,136
--------------
365,209,748
--------------
FOREST PRODUCTS -- 7.4%
Fort James Corp................................. 664,000 29,548,000
Georgia-Pacific Corp............................ 1,258,000 74,143,375
Georgia-Pacific Timber Group.................... 1,158,000 26,706,375
International Paper Co.......................... 1,638,000 70,434,000
Mead Corp....................................... 1,800,000 57,150,000
Rayonier Inc.................................... 830,400 38,198,400
Temple-Inland, Inc.............................. 892,500 48,083,437
Weyerhaeuser Co................................. 1,522,500 70,320,469
Willamette Industries, Inc...................... 2,500,000 80,000,000
--------------
494,584,056
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 6.9%
Columbia/HCA Healthcare Corp.................... 4,074,100 118,658,162
Foundation Health Systems, Inc. (a)............. 3,303,810 87,137,989
PacifiCare Health Systems, Inc. (a)............. 547,100 48,349,962
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
82
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Tenet Healthcare Corp. (a)...................... 3,103,832 96,994,750
Wellpoint Health Networks Inc................... 1,544,300 114,278,200
--------------
465,419,063
--------------
INSURANCE -- 10.7%
American Financial Group, Inc................... 552,700 $ 23,938,819
American General Corp........................... 1,528,504 108,810,378
Chubb Corp...................................... 2,206,400 177,339,400
Citizens Corp................................... 700,000 21,918,750
Equitable Companies, Inc........................ 1,100,000 82,431,250
Old Republic International Corp................. 2,926,327 85,777,960
SAFECO Corp..................................... 2,855,800 129,760,412
St. Paul Companies, Inc......................... 1,653,800 69,562,963
Tokio Marine & Fire Insurance Co. Ltd. ADR
(Japan)....................................... 404,400 20,573,850
--------------
720,113,782
--------------
METALS - FERROUS -- 0.4%
Birmingham Steel Corp........................... 1,492,400 18,468,450
Carpenter Technology Corp....................... 100,000 5,025,000
--------------
23,493,450
--------------
METALS - NON FERROUS -- 0.9%
Aluminum Company of America..................... 600,000 39,562,500
Cyprus Amax Minerals Co......................... 1,490,400 19,747,800
Nord Resources Corp. (a)........................ 130,500 252,844
--------------
59,563,144
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0%
Eastman Kodak Co................................ 889,800 65,011,013
--------------
OIL & GAS -- 2.3%
Amerada Hess Corp............................... 325,000 17,651,563
Atlantic Richfield Co........................... 1,100,000 85,937,500
Total SA, ADR, (France)......................... 738,365 48,270,612
--------------
151,859,675
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 4.1%
Elf Aquitaine SA, ADR, (France)................. 2,424,433 172,134,743
MarketSpan Corp. (a)............................ 1,356,432 40,608,183
Occidental Petroleum Corp....................... 1,100,000 29,700,000
Oryx Energy Co. (a)............................. 1,600,000 35,400,000
--------------
277,842,926
--------------
PRECIOUS METALS -- 0.8%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A").......................................... 1,748,800 24,920,400
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 319,600 4,853,925
Kinross Gold Corp. (a).......................... 105,126 341,660
Newmont Mining Corp............................. 994,100 23,485,613
--------------
53,601,598
--------------
RESTAURANTS -- 1.9%
Darden Restaurants, Inc......................... 7,922,700 125,772,863
--------------
RETAIL -- 8.5%
BJ's Wholesale Club, Inc. (a)................... 250,900 10,192,813
Dillard's, Inc.................................. 3,300,000 136,743,750
HomeBase, Inc. (a).............................. 1,300,000 10,318,750
IKON Office Solutions, Inc...................... 1,101,500 16,040,594
Kmart Corp. (a)................................. 6,500,000 125,125,000
Nine West Group Inc. (a)........................ 910,000 24,399,375
Pep Boys - Manny, Moe & Jack.................... 2,025,000 38,348,438
Petrie Stores Corp. (a)......................... 540,000 1,549,800
Sears, Roebuck and Co........................... 690,000 42,133,125
Tandy Corp...................................... 2,115,800 112,269,638
Toys 'R' Us, Inc. (a)........................... 2,350,000 55,371,875
--------------
572,493,158
--------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SEMICONDUCTORS -- 0.3%
National Semiconductor Corp. (a)................ 1,360,000 17,935,000
--------------
TELECOMMUNICATIONS -- 3.9%
360 Communication Co. (a)....................... 1,696,066 $ 54,274,112
AT&T Corp....................................... 1,100,000 62,837,500
Loral Corp...................................... 1,800,000 50,850,000
Portugal Telecom SA, ADR, (Portugal)............ 823,400 43,588,738
Telefonica de Espana, SA, ADR, (Spain).......... 336,300 46,766,719
--------------
258,317,069
--------------
TEXTILES
Worldtex, Inc. (a).............................. 107,199 623,094
--------------
TRANSPORTATION -- 0.3%
Marine Transport Corp. (a)...................... 100,000 406,250
OMI Corp. (a)................................... 1,000,000 8,000,000
Overseas Shipholding Group, Inc................. 600,000 12,225,000
--------------
20,631,250
--------------
UTILITY - ELECTRIC -- 1.4%
American Electric Power Co., Inc................ 180,000 8,167,500
GPU, Inc........................................ 500,000 18,906,250
Houston Industries, Inc......................... 974,519 30,088,274
Unicom Corp..................................... 1,112,900 39,021,056
--------------
96,183,080
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 8,370,000
--------------
WASTE MANAGEMENT -- 0.9%
Waste Management, Inc........................... 1,623,300 56,815,500
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,471,468,003).................................................... 5,407,847,310
--------------
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 19.8% RATING (000)
------------ ---------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 7.2%
American General Finance,
5.53%, 07/14/98............................... P1 $ 12,000 11,976,037
Aon Corp.,
5.55%, 07/14/98............................... P2 4,000 3,991,983
Associates Corp. of North America,
5.52%, 08/10/98............................... P1 26,000 25,840,533
Bank of New York Co., Inc.,
5.53%, 07/28/98............................... P1 50,000 49,792,625
Bell Atlantic Financial,
5.58%, 07/22/98............................... P1 3,000 2,990,235
Caterpillar Inc.,
6.00%, 07/06/98............................... P1 15,000 15,000,000
Commercial Credit Co.,
5.57%, 08/11/98............................... P1 14,000 13,911,189
Cregem North America,
5.70%, 07/20/98............................... P1 6,000 5,981,950
Eastman Kodak Co.,
5.57%, 08/26/98............................... P1 5,000 4,956,678
Ford Motor Credit Corp.,
5.54%, 07/02/98............................... P1 8,000 7,998,769
General Electric Capital Corp.,
5.53%, 08/14/98............................... P1 57,000 56,614,743
5.60%, 07/22/98............................... P1 6,000 5,980,400
General Reinsurance Corp.,
5.57%, 08/07/98............................... P1 5,035 5,006,176
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
GTE Finance Corp.,
5.60%, 07/23/98............................... P3 11,000 10,962,356
Heinz (H.J.) Co.,
5.55%, 07/16/98............................... P1 $ 6,990 $ 6,973,836
5.55%, 08/28/98............................... P1 20,000 19,821,167
Morgan (J.P.) & Co., Inc.,
5.54%, 08/24/98............................... P1 62,000 61,484,780
Nordbanken N.A.,
5.52%, 07/10/98............................... P1 18,000 17,975,160
Nordbanken North America, Inc.,
5.52%, 08/04/98............................... P1 10,000 9,947,867
Norwest Corp.,
5.57%, 07/23/98............................... P1 17,000 16,942,134
Svenska Handelsbanken,
5.53%, 08/10/98............................... P1 14,000 13,913,978
UBS Finance (Delaware),
5.52%, 08/07/98............................... P1 35,000 34,801,433
5.53%, 08/07/98............................... P1 16,000 15,909,062
Xerox Corp.,
5.52%, 07/14/98............................... P1 47,000 46,906,313
Xerox Credit Corp.,
5.56%, 08/10/98............................... P1 20,035 19,911,228
--------------
485,590,632
--------------
LOAN PARTICIPATIONS -- 0.2%
Countrywide Home Loan, Inc.,
5.60%, 07/28/98............................... P1 11,000 10,953,800
--------------
REPURCHASE AGREEMENT -- 9.9%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)..................... 661,589 661,589,000
--------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.7%
Federal National Mortgage Association,
4.94%, 02/23/99............................... $ 5,000 $ 4,980,450
5.63%, 08/14/98............................... 8,000 7,998,160
5.71%, 09/09/98............................... 15,000 15,014,100
United States Treasury Note,
6.125%, 08/31/98.............................. 18,000 18,025,380
--------------
46,018,090
--------------
CERTIFICATES OF DEPOSIT - DOMESTIC -- 0.8%
Chase Manhattan Bank,
5.57%, 08/14/98............................... P1 55,000 55,000,000
--------------
TIME DEPOSIT - EURODOLLAR -- 1.0%
Westdeutsche Landesbank,
5.55%, 07/08/98............................... P1 67,000 67,000,000
--------------
CERTIFICATES OF DEPOSIT - YANKEE
Credit Commerce De Belgium,
5.58%, 08/13/98............................... P1 3,000 3,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,329,118,450).................................................... 1,329,151,522
--------------
TOTAL INVESTMENTS -- 100.4%
(cost $4,800,586,453; Note 6)............................................ 6,736,998,832
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4%)............................
(30,184,478)
--------------
NET ASSETS -- 100.0%....................................................... $6,706,814,354
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
PRUDENTIAL JENNISON PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 96.8%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.7%
Boeing Co....................................... 249,600 $ 11,122,800
Gartner Group, Inc. (a)......................... 79,800 2,793,000
--------------
13,915,800
--------------
BANKS AND SAVINGS & LOANS -- 6.7%
Chase Manhattan Corp............................ 300,600 22,695,300
Citicorp........................................ 158,300 23,626,275
Fleet Financial Group, Inc...................... 112,100 9,360,350
--------------
55,681,925
--------------
BUSINESS SERVICES -- 1.5%
Omnicom Group, Inc.............................. 240,200 11,979,975
--------------
CHEMICALS -- 2.0%
Monsanto Co..................................... 298,000 16,650,750
--------------
COMPUTER SERVICES -- 6.7%
Microsoft Corp. (a)............................. 183,100 19,843,462
Oracle Corp. (a)................................ 326,100 8,009,831
Parametric Technology Corp. (a)................. 276,800 7,508,200
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PLATINUM Technology, Inc. (a)................... 288,808 $ 8,249,078
SAP AG, (Germany), ADR.......................... 52,200 11,803,725
--------------
55,414,296
--------------
COMPUTERS -- 9.7%
3Com Corp. (a).................................. 158,400 4,860,900
Cisco Systems, Inc. (a)......................... 240,450 22,136,428
Compaq Computer Corp............................ 427,600 12,133,150
Dell Computer Corp. (a)......................... 150,800 13,996,125
Hewlett-Packard Co.............................. 225,300 13,489,837
International Business Machines Corp............ 120,000 13,777,500
--------------
80,393,940
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.0%
Xerox Corp...................................... 81,700 8,302,762
--------------
DIVERSIFIED OPERATIONS -- 2.5%
General Electric Capital Corp................... 227,000 20,657,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
84
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS AND MEDICAL SUPPLIES -- 10.5%
American Home Products Corp..................... 298,600 $ 15,452,550
Eli Lilly & Co.................................. 238,000 15,722,875
Pfizer, Inc..................................... 218,900 23,791,694
Schering-Plough Corp............................ 200,900 18,407,462
Warner-Lambert Co............................... 190,300 13,202,062
--------------
86,576,643
--------------
ELECTRONICS -- 6.6%
Applied Materials, Inc. (a)..................... 259,800 7,664,100
Intel Corp...................................... 160,700 11,911,887
International Rectifier Corp. (a)............... 204,600 1,739,100
KLA-Tencor Corp. (a)............................ 160,300 4,438,306
Symbol Technologies, Inc........................ 344,925 13,020,919
Texas Instruments, Inc.......................... 272,300 15,878,494
--------------
54,652,806
--------------
FINANCIAL SERVICES -- 8.9%
Associates First Capital Corp................... 163,600 12,576,750
MBNA Corp....................................... 246,825 8,145,225
Merrill Lynch & Co., Inc........................ 142,600 13,154,850
Morgan Stanley, Dean Witter, Discover & Co...... 209,620 19,154,027
Schwab (Charles) Corp........................... 180,400 5,863,000
Washington Mutual, Inc.......................... 345,000 14,985,937
--------------
73,879,789
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.8%
Healthsouth Corp. (a)........................... 260,600 6,954,763
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 1.6%
Gillette Co..................................... 226,200 12,822,713
--------------
INSURANCE -- 5.3%
Ace, Ltd........................................ 287,100 11,196,900
Mutual Risk Management, Ltd..................... 327,232 11,923,516
Provident Companies, Inc........................ 248,500 8,573,250
UNUM Corp....................................... 224,900 12,481,950
--------------
44,175,616
--------------
LEISURE -- 2.9%
Walt Disney Co.................................. 44,300 4,654,269
Hilton Hotels Corp.............................. 406,600 11,588,100
Promus Hotel Corp. (a).......................... 209,100 8,050,350
--------------
24,292,719
--------------
MACHINERY -- 0.8%
Case Corp....................................... 138,300 6,672,975
--------------
MEDIA -- 3.2%
CBS Corp........................................ 428,800 13,614,400
Clear Channel Communications, Inc. (a).......... 115,300 12,582,113
--------------
26,196,513
--------------
</TABLE>
<TABLE>
JUNE 30, 1998 (UNAUDITED)
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES -- 1.3%
Schlumberger Ltd................................ 158,500 $ 10,827,531
--------------
RETAIL -- 8.0%
Dollar General Corporation...................... 253,493 10,028,817
Home Depot, Inc................................. 220,600 18,323,588
Kohl's Corp. (a)................................ 237,000 12,294,375
Sears, Roebuck & Co............................. 193,800 11,833,913
The Gap, Inc.................................... 218,600 13,471,225
--------------
65,951,918
--------------
SOFTWARE -- 1.3%
Intuit, Inc. (a)................................ 176,200 10,792,250
--------------
TELECOMMUNICATIONS -- 12.8%
Airtouch Communications, Inc. (a)............... 239,800 14,013,313
Ascend Communications, Inc. (a)................. 194,400 9,634,950
Ciena Corp. (a)................................. 238,800 16,626,450
Nokia AB Corp., ADR, (Japan).................... 158,300 11,486,644
Tellabs, Inc. (a)............................... 236,100 16,910,663
Vodafone Group, PLC, ADR, (United Kingdom)...... 63,000 7,941,938
WorldCom, Inc. (a).............................. 598,700 28,999,531
--------------
105,613,489
--------------
TRUCKING/SHIPPING -- 1.0%
Federal Express Corp. (a)....................... 126,300 7,925,325
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $629,219,033)............................................ 800,331,498
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 2.4% (000)
-------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account, 5.715%,
07/01/98
(cost $19,338,000; note 5).................... $ 19,338 19,338,000
--------------
TOTAL INVESTMENTS -- 99.2%
(cost $648,557,033; Note 6).................................... 819,669,498
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.8%....................
7,013,448
--------------
NET ASSETS -- 100.0%............................................. $ 826,682,946
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
85
<PAGE>
GLOBAL PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
LONG-TERM INVESTMENTS -- 95.6%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS -- 94.2% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 1.3%
AMP Limited..................................... 326,000 $ 3,814,215
Brambles Industries, Ltd........................ 298,600 5,857,844
FXF Trust....................................... 224,600 31,284
--------------
9,703,343
--------------
FEDERAL REPUBLIC OF GERMANY -- 5.6%
Dresdner Bank, AG............................... 84,012 4,531,768
Mannesmann, AG.................................. 65,153 6,686,518
SAP, AG......................................... 28,222 17,097,145
Volkswagen, AG.................................. 12,978 12,514,885
--------------
40,830,316
--------------
FINLAND -- 2.5%
Nokia Corp. (Class "A" Stock)................... 246,376 18,098,831
--------------
FRANCE -- 9.1%
Casino Guichard Perrachon, SA................... 71,392 5,684,000
Elf Aquitaine, SA............................... 86,520 12,127,539
Legrand, SA..................................... 44,084 11,631,566
Pinault Printemps Redoute, SA................... 7,869 6,566,097
Thomson CSF..................................... 259,500 9,842,432
Total, SA (Class "B" Stock)..................... 66,023 8,557,660
Valeo, SA....................................... 117,817 12,006,977
--------------
66,416,271
--------------
IRELAND -- 2.0%
Bank Of Ireland................................. 724,461 14,848,060
--------------
ITALY -- 5.0%
Credito Italiano................................ 3,777,422 19,739,276
Fiat SpA........................................ 1,703,723 7,443,855
Telecom Italia SpA.............................. 1,242,489 9,130,312
--------------
36,313,443
--------------
JAPAN -- 4.4%
Daibiru Corp.................................... 161,000 1,039,986
Honda Motor Co.................................. 134,000 4,782,948
Nippon Telephone and Telegraph Corp............. 922 7,661,127
Olympus Optical Co., Ltd........................ 935,000 8,147,471
Takefuji Corp................................... 112,000 5,179,191
Toyota Motor Corp............................... 186,000 4,824,711
--------------
31,635,434
--------------
NETHERLANDS -- 2.6%
ING Groep, N.V.................................. 191,168 12,496,326
Koninklijke Numico, N.V......................... 215,476 6,735,987
--------------
19,232,313
--------------
SINGAPORE
Sembawang Maritime, Ltd......................... 276,500 146,996
--------------
SPAIN -- 4.8%
Banco Central Hispanoamericano, SA.............. 607,778 19,093,377
Telefonica De Espana............................ 335,742 15,514,674
--------------
34,608,051
--------------
SWEDEN -- 4.7%
Hennes & Mauritz, AB............................ 228,145 14,533,794
Nordbanken Holdings, AB......................... 1,730,900 12,672,962
Skanska, AB (Class "B" Shares).................. 154,500 6,922,481
--------------
34,129,237
--------------
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SWITZERLAND -- 2.9%
Novartis, AG.................................... 6,180 $ 10,278,620
UBS, AG......................................... 29,765 11,062,212
--------------
21,340,832
--------------
UNITED KINGDOM -- 10.3%
Guest, Kean & Nettlefolds, PLC.................. 695,950 8,868,362
Hays, PLC....................................... 613,983 10,298,613
Johnson Matthey, PLC............................ 760,037 6,824,539
Royal & Sun Alliance Insurance Group, PLC....... 777,959 8,043,672
Siebe, PLC...................................... 448,915 8,968,392
Unilever, PLC................................... 922,674 9,824,836
Vodafone Group, PLC............................. 1,717,216 21,796,185
--------------
74,624,599
--------------
UNITED STATES -- 39.0%
Abercrombie & Fitch Co. (Class "A" Stock)....... 1 29
Adobe Systems, Inc.............................. 214,400 9,098,600
Belo (A.H.) Corp. (Class "A" Stock)............. 86,100 2,098,687
Cendant Corp. (a)............................... 274,400 5,728,100
Cisco Systems, Inc. (a)......................... 170,400 15,687,450
Computer Sciences Corp. (a)..................... 140,100 8,966,400
Consolidated Stores Corp........................ 297,200 10,773,500
Electronic Arts, Inc. (a)....................... 229,100 12,371,400
Electronics For Imaging, Inc.................... 301,800 6,375,525
Healthsouth Corp. (a)........................... 392,800 10,482,850
Household International , Inc................... 200,800 9,989,800
Jefferson Smurfit Corp.......................... 236,200 3,712,769
Microsoft Corp. (a)............................. 155,900 16,895,662
Mobil Corp...................................... 144,600 11,079,975
PMC-Sierra, Inc................................. 315,000 14,765,625
Proffitt's, Inc. (a)............................ 258,500 10,436,937
Progressive Corp................................ 55,300 7,797,300
Quorum Health Group, Inc........................ 251,900 6,675,350
Safeway, Inc. (a)............................... 363,600 14,793,975
Tenet Healthcare Corp. (a)...................... 265,100 8,284,375
Teradyne, Inc................................... 279,900 7,487,325
Texas Instruments, Inc.......................... 211,700 12,344,756
The Limited, Inc................................ 417,500 13,829,687
Time Warner, Inc................................ 166,300 14,208,256
Transocean Offshore, Inc........................ 203,100 9,037,950
U.S.A. Waste Services, Inc. (a)................. 233,500 11,529,062
USA Networks, Inc............................... 136,100 3,419,512
Walt Disney Co.................................. 85,500 8,982,844
Wells Fargo & Co................................ 29,100 10,737,900
WorldCom, Inc. (a).............................. 128,200 6,209,688
--------------
283,801,289
--------------
TOTAL COMMON STOCKS
(cost $490,167,887)............................................ 685,729,015
--------------
PREFERRED STOCKS -- 1.4%
FEDERAL REPUBLIC OF GERMANY
Wella, A G
(cost $6,747,046)............................. 8,961 10,014,506
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $496,914,933)............................................ 695,743,521
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 1.1% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Bear, Stearns & Co. Inc.,
5.83%, 07/01/98
(Cost $7,647,000) (b)....................... $ 7,647 $ 7,647,000
--------------
TOTAL INVESTMENTS -- 96.7%
(cost $504,561,933; Note 6).................................... 703,390,521
--------------
FORWARD CURRENCY CONTRACTS -- AMOUNT RECEIVABLE FROM
COUNTERPARTIES -- 0.2%......................................... 1,348,569
OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.1%....................
22,869,039
--------------
NET ASSETS -- 100.0%............................................. $ 727,608,129
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschop (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Bear, Stearns & Co. Inc., repurchase price $7,648,238 due 7/1/98. The value
of the collateral was $7,825,248.
(c) Outstanding foreign currency contracts at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE APPRECIATION
- --------------------------------------- ----------------- -------------- ------------------
<S> <C> <C> <C>
Sale:
Japanese Yen,
expiring 10/01/98 $ 19,314,002 $ 18,226,481 $ 1,087,521
expiring 12/23/98 $ 4,750,000 $ 4,619,652 $ 130,348
expiring 12/24/98 $ 4,750,000 $ 4,619,300 $ 130,700
</TABLE>
JUNE 30, 1998 (UNAUDITED)
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of June 30, 1998 were as
follows:
Commercial Banks....................... 16.4%
Computer Services...................... 11.9%
Telecommunications..................... 10.8%
Retail................................. 10.5%
Electronics............................ 7.2%
Automobiles............................ 6.9%
Oil & Gas Services..................... 4.0%
Hospitals.............................. 3.5%
Media.................................. 2.8%
Insurance.............................. 2.7%
Commercial Services.................... 2.2%
Machinery.............................. 2.2%
Chemicals.............................. 1.7%
Electrical Equipment................... 1.6%
Environmental Services................. 1.6%
Consumer Services...................... 1.4%
Cosmetics & Soaps...................... 1.4%
Drugs & Medical Supplies............... 1.4%
Leisure................................ 1.2%
Construction........................... 1.0%
Precious Metals........................ 0.9%
Food & Beverage........................ 0.9%
Diversified Operations................. 0.8%
Paper and Related Products............. 0.5%
Real Estate Development................ 0.1%
Trucking & Shipping.................... 0.0%
Repurchase Agreement................... 1.1%
------
96.7%
------
Forward currency contracts............. 0.2%
Other assets in excess of
liabilities.......................... 3.1%
------
100.0%
------
------
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
CERTAIN PORTFOLIOS OF
THE PRUDENTIAL SERIES FUND, INC.
(UNAUDITED)
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in thse
financial statements pertains to only the ten Portfolios available for
investment by Variable Universal Life: Money Market Portfolio, Diversified Bond
Portfolio, Conservative Balanced Portfolio, Flexible Managed Portfolio, High
Yield Bond Portfolio, Stock Index Portfolio, Equity Income Portfolio, Equity
Portfolio, Prudential Jennison Portfolio and Global Portfolio. Shares in the
Series Fund are currently sold only to certain separate accounts of The
Prudential Insurance Company of America ("The Prudential"), Pruco Life Insurance
Company and Pruco Life Insurance Company of New Jersey (together referred to as
the "Companies") to fund benefits under certain variable life insurance and
variable annuity contracts ("contracts") issued by the Companies. The accounts
invest in shares of the Series Fund through subaccounts that correspond to the
Portfolios. The accounts will redeem shares of the Series Fund to the extent
necessary to provide benefits under the contracts or for such other purposes as
may be consistent with the contracts. The ability of the issuers of the
securities held by the Money Market Portfolio to meet their obligations may be
affected by economic developments in a specific industry or region.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices
or at the bid price on such day in the absence of an asked price. Convertible
debt securities are valued at the mean between the most recently quoted bid and
asked prices provided by principal market makers. High yield bonds are valued
either by quotes received from principal market makers or by an independent
pricing service which determine prices by analysis of quality, coupon, maturity
and other factors. Any security for which a reliable market quotation is
unavailable is valued at fair value as determined in good faith by or under the
direction of the Series Fund's Board of Directors.
The Money Market, Conservative Balanced and Flexible Managed Portfolios use
amortized cost to value short-term securities. Short-term securities that are
held in the other Portfolios which mature in more than 60 days are valued at
current market quotations and those short-term securities which mature in 60
days or less are valued at amortized cost.
The High Yield Bond Portfolio may hold up to 15% of its net assets in illiquid
securities, including those which are restricted as to disposition under
securities law ("restricted securities"). Certain issues of restricted
securities held by the High Yield Bond Portfolio at June 30, 1998 include
registration rights, some of which are currently under contract to be
registered. Restricted securities, sometimes referred to as private placements,
are valued pursuant to the valuation procedures noted above.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal period.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal period. Accordingly,
these realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
88
<PAGE>
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the buyer. The proceeds of the short sale will be
retained by the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Portfolio may have to pay a fee to borrow the particular security and may be
obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the period is
estimated to be a return of capital and is recorded as a reduction of their
costs. During the six months ended June 30, 1998, certain Portfolios purchased
securities from and sold securities to other Portfolios of the Series Fund or
other funds or accounts managed by The Prudential or its affiliates in
accordance with the provisions of Rule 17a-7 of the Investment Company Act of
1940. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.
CUSTODY FEE CREDITS: The Series Fund, exclusive of the Global Portfolio, has an
arrangement with its custodian bank, whereby uninvested monies earn credits
which reduce the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying Statement of
Operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
The Money Market Portfolio will declare and reinvest dividends from net
investment income and net realized capital gain (loss) daily. Each other
Portfolio will declare and distribute dividends from net investment income, if
any, quarterly and net capital gains, if any, at least annually. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. For the six months
ended
89
<PAGE>
June 30, 1998, the application of this statement increased (decreased)
undistributed net investment income ("UNI") and accumulated net realized gains
(losses) on investments ("GL") by the following amounts:
UNI G/L
------------ -----------
Equity Portfolio....................... $ 132,673 $ (132,673)
Global Portfolio....................... (1,253,947) 1,253,947
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ('PIC'), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Associates LLC ('Jennison'), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. The Prudential compensates Jennison for its
services as follows: 0.75% on the first $10 million of that Portfolio's average
daily net assets, 0.50% on the next $30 million, 0.35% on the next $25 million,
0.25% on the next $335 million, 0.22% on the next $600 million and 0.20%
thereafter. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.
The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
Money Market Porfolio.................. 0.40%
Diversified Bond Portfolio............. 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
High Yield Bond Portfolio.............. 0.55
Stock Index Portfolio.................. 0.35
Equity Income Portfolio................ 0.40
Equity Portfolio....................... 0.45
Prudential Jennison Portfolio.......... 0.60
Global Portfolio....................... 0.75
The Prudential has agreed to refund to a Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No refund was required for the six months ended June
30, 1998.
PIC and Jennison are indirect, wholly-owned subsidiaries of The Prudential.
The Series Fund has a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $250,000,000. The
Agreement expires on December 18, 1998. Interest on any such borrowings
outstanding will be at market rates. The purpose of the Agreement is to serve as
an alternative source of funding for capital share redemptions. The Series Fund
did not borrow any amounts pursuant to the Agreement during the six months ended
June 30, 1998. The Series Fund pays a commitment fee at an annual rate of .055
of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly by the Series Fund.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1998, Prudential Securities Incorporated, an
indirect, wholly-owned subsidiary of The Prudential, earned $220,902 in
brokerage commissions from transactions executed on behalf of the following
Portfolios:
Fund Commission
- --------------------------------------- -----------
Conservative Balanced Portfolio........ $ 19,607
Flexible Managed Portfolio............. 50,927
Equity Income Portfolio................ 27,790
Equity Portfolio....................... 108,331
Global Portfolio....................... 14,247
-----------
$ 220,902
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$1,189,382,000 as
90
<PAGE>
of June 30, 1998. The Portfolios of the Series Fund with cash invested in the
joint accounts had the following principal amounts and percentage participation
in the account:
Principal Percentage
Amount Interest
--------------- ----------
Diversified Bond Portfolio............. $ 30,681,000 2.58%
Conservative Balanced Portfolio........ 95,049,000 7.99
Flexible Managed Portfolio............. 140,082,000 11.78
High Yield Bond Portfolio.............. 6,459,000 0.54
Stock Index Portfolio.................. 116,704,000 9.81
Equity Income Portfolio................ 108,947,000 9.16
Equity Portfolio....................... 661,589,000 55.63
Prudential Jennison Portfolio.......... 19,338,000 1.63
All other portfolios (currently not
available to Variable Universal
Life)................................ 10,533,000 0.88
--------------- ----------
$ 1,189,382,000 100.00%
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.85%, in the principal amount of $340,000,000,
repurchase price $340,055,250, due 7/1/98. The value of the collateral including
accrued interest was $347,935,730.
Goldman Sachs & Co., Inc., 5.10%, in the principal amount of $169,382,000,
repurchase price $169,405,996, due 7/1/98. The value of the collateral including
accrued interest was $173,452,415.
Salomon Smith Barney Inc., 5.70%, in the principal amount of $340,000,000,
repurchase price $340,053,833, due 7/1/98. The value of the collateral including
accrued interest was $347,279,047.
SBC Warburg Dillon Reed Inc., 5.90%, in the principal amount of $340,000,000,
repurchase price $340,055,722, due 7/1/98. The value of the collateral including
accrued interest was $347,517,223.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the six months ended June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Cost of Purchases:
DIVERSIFIED CONSERVATIVE FLEXIBLE HIGH YIELD
BOND BALANCED MANAGED BOND STOCK INDEX
------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Government Securities.................. $ 483,904,842 $ 1,744,981,475 $ 1,546,388,249 0 0
Non-Government Securities.............. $ 515,117,787 $ 3,272,179,753 $ 3,590,683,873 $ 417,784,748 $ 267,686,221
<CAPTION>
EQUITY PRUDENTIAL
INCOME EQUITY JENNISON GLOBAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Government Securities.................. 0 0 0 0
Non-Government Securities.............. $ 444,871,392 $ 726,500,817 $ 343,242,017 $ 258,075,348
<CAPTION>
Proceeds from Sales:
DIVERSIFIED CONSERVATIVE FLEXIBLE HIGH YIELD
BOND BALANCED MANAGED BOND STOCK INDEX
------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Government Securities.................. $ 309,707,021 $ 1,387,898,008 $ 1,145,182,330 0 0
Non-Government Securities.............. $ 561,436,949 $ 3,704,451,747 $ 4,047,305,994 $ 279,082,307 $ 43,589,341
<CAPTION>
EQUITY PRUDENTIAL
INCOME EQUITY JENNISON GLOBAL
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Government Securities.................. 0 0 0 0
Non-Government Securities.............. $ 218,034,462 $ 1,026,419,816 $ 136,374,995 $ 274,480,277
<CAPTION>
The federal income tax basis and unrealized appreciation (depreciation) of the
Series Fund's investments as of June 30, 1998 were as follows:
DIVERSIFIED CONSERVATIVE FLEXIBLE HIGH YIELD
BOND BALANCED MANAGED BOND STOCK INDEX
------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 25,938,972 $ 247,053,821 $ 524,221,445 $ 13,707,937 $ 1,391,996,532
Gross Unrealized Depreciation.......... 2,876,703 91,383 126,889,506 14,919,549 21,316,928
Total Net Unrealized................... 23,062,269 246,962,438 397,331,939 (1,211,712) 1,970,679,604
Tax Basis.............................. 902,862,198 4,585,145,108 6,372,097,545 702,712,520 1,731,988,450
<CAPTION>
EQUITY PRUDENTIAL
INCOME EQUITY JENNISON GLOBAL
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 670,373,929 $ 2,043,459,258 $ 186,605,814 $ 207,400,426
Gross Unrealized Depreciation.......... 73,210,933 107,046,879 15,493,349 8,598,136
Total Net Unrealized................... 597,162,996 1,936,412,379 171,112,465 198,802,290
Tax Basis.............................. 1,848,001,409 4,800,586,453 648,557,033 504,588,231
</TABLE>
For federal income tax purposes, the following Portfolio had capital loss
carryforward as of December 31, 1997. Accordingly, no capital gain distributions
are expected to be paid to shareholders until net gains have been realized in
excess of such amount:
CAPITAL LOSS
CARRYFORWARD
AVAILABLE EXPIRATION DATE
------------- ----------------
High Yield Bond Portfolio.............. $ 6,390,479 12/31/2003
91
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and realized and
unrealized gains..................... 0.26 0.54 0.51 0.56 0.40 0.29
Dividends and distributions............ (0.26) (0.54) (0.51) (0.56) (0.40) (0.29)
-------------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ 2.67% 5.41% 5.22% 5.80% 4.05% 2.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $866.3 $657.5 $668.8 $613.3 $583.3 $474.7
Ratios to average net assets:
Expenses............................. 0.42%(c) 0.43% 0.44% 0.44% 0.47% 0.45%
Net investment income................ 5.29%(c) 5.28% 5.10% 5.64% 4.02% 2.90%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND PORTFOLIO
--------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10 $ 10.83
-------------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.36 0.80 0.76 0.76 0.68 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.13 0.11 (0.27) 1.29 (1.04) 0.40
-------------- ----------- ----------- ----------- ----------- -----------
Total from investment operations..... 0.49 0.91 0.49 2.05 (0.36) 1.08
-------------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.18) (0.83) (0.73) (0.75) (0.68) (0.66)
Distributions from net realized
gains................................ (0.04) (0.13) -- (0.03) (0.02) (0.15)
-------------- ----------- ----------- ----------- ----------- -----------
Total distributions.................. (0.22) (0.96) (0.73) (0.78) (0.70) (0.81)
-------------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 11.29 $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ 4.44% 8.57% 4.40% 20.73% (3.23)% 10.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $940.2 $816.7 $720.2 $655.8 $541.6 $576.2
Ratios to average net assets:
Expenses............................. 0.43%(c) 0.43% 0.45% 0.44% 0.45% 0.46%
Net investment income................ 6.66%(c) 7.18% 6.89% 7.00% 6.41% 6.05%
Portfolio turnover rate................ 108% 224% 210% 199% 32% 41%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for less than a
full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
92
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED PORTFOLIO
-------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period........................... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
-------------- ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.33 0.76 0.66 0.63 0.53 0.49
Net realized and unrealized gains
(losses) on investments.......... 0.87 1.26 1.24 1.78 (0.68) 1.23
-------------- ------------ ------------ ------------ ------------ ------------
Total from investment
operations................... 1.20 2.02 1.90 2.41 (0.15) 1.72
-------------- ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.17) (0.76) (0.66) (0.64) (0.51) (0.47)
Distributions from net realized
gains............................ (0.13) (1.81) (1.03) (0.56) (0.15) (0.58)
-------------- ------------ ------------ ------------ ------------ ------------
Total distributions............ (0.30) (2.57) (1.69) (1.20) (0.66) (1.05)
-------------- ------------ ------------ ------------ ------------ ------------
Net Asset Value, end of period..... $ 15.87 $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
-------------- ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN:(b)........ 8.02% 13.45% 12.63% 17.27% (0.97)% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)........................ $4,868.2 $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2
Ratios to average net assets:
Expenses......................... 0.58%(c) 0.56% 0.59% 0.58% 0.61% 0.60%
Net investment income............ 4.24%(c) 4.48% 4.13% 4.19% 3.61% 3.22%
Portfolio turnover rate............ 110% 295% 295% 201% 125% 79%
<CAPTION>
FLEXIBLE MANAGED PORTFOLIO
-----------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period........................... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
-------------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.28 0.59 0.57 0.56 0.47 0.57
Net realized and unrealized gains
(losses) on investments.......... 1.38 2.52 1.79 3.15 (1.02) 1.88
-------------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations................... 1.66 3.11 2.36 3.71 (0.55) 2.45
-------------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.13) (0.58) (0.58) (0.56) (0.45) (0.57)
Distributions from net realized
gains............................ (0.28) (3.04) (1.85) (0.79) (0.46) (0.93)
-------------- ----------- ----------- ----------- ----------- -----------
Total distributions............ (0.41) (3.62) (2.43) (1.35) (0.91) (1.50)
-------------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period..... $ 18.53 $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)........ 9.58% 17.96% 13.64% 24.13% (3.16)% 15.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)........................ $5,787.4 $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2
Ratios to average net assets:
Expenses......................... 0.62%(c) 0.62% 0.64% 0.63% 0.66% 0.66%
Net investment income............ 3.11%(c) 3.02% 3.07% 3.30% 2.90% 3.30%
Portfolio turnover rate............ 97% 227% 233% 173% 124% 63%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
93
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
HIGH YIELD BOND PORTFOLIO
----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41 $ 7.72
-------------- ----------- ----------- ----------- ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.39 0.78 0.80 0.81 0.87 0.82
Net realized and unrealized gains
(losses) on investments.............. 0.03 0.26 0.06 0.46 (1.10) 0.63
-------------- ----------- ----------- ----------- ------------ -----------
Total from investment operations... 0.42 1.04 0.86 1.27 (0.23) 1.45
-------------- ----------- ----------- ----------- ------------ -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.20) (0.77) (0.78) (0.84) (0.81) (0.76)
Dividends in excess of net investment
income............................... -- -- (0.01) -- -- --
-------------- ----------- ----------- ----------- ------------ -----------
Total distributions................ (0.20) (0.77) (0.79) (0.84) (0.81) (0.76)
-------------- ----------- ----------- ----------- ------------ -----------
Net Asset Value, end of period......... $ 8.36 $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41
-------------- ----------- ----------- ----------- ------------ -----------
-------------- ----------- ----------- ----------- ------------ -----------
TOTAL INVESTMENT RETURN:(b)............ 5.20% 13.78% 11.39% 17.56% (2.72)% 19.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $709.6 $568.7 $432.9 $367.9 $306.2 $282.9
Ratios to average net assets:
Expenses............................. 0.52%(c) 0.57% 0.63% 0.61% 0.65% 0.65%
Net investment income................ 9.11%(c) 9.78% 9.89% 10.34% 9.88% 9.91%
Portfolio turnover rate................ 44% 106% 88% 139% 69% 96%
<CAPTION>
STOCK INDEX PORTFOLIO
-----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20 $ 14.22
-------------- ------------ ------------ ------------ ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.21 0.43 0.40 0.40 0.38 0.36
Net realized and unrealized gains
(losses) on investments.............. 5.06 7.34 4.06 5.13 (0.23) 1.00
-------------- ------------ ------------ ------------ ----------- -----------
Total from investment operations... 5.27 7.77 4.46 5.53 0.15 1.36
-------------- ------------ ------------ ------------ ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.42) (0.40) (0.38) (0.37) (0.35)
Dividends in excess of net investment
income............................... -- (0.87) -- -- -- --
Distributions from net realized
gains................................ (0.08) -- (0.28) (0.15) (0.02) (0.03)
-------------- ------------ ------------ ------------ ----------- -----------
Total distributions................ (0.18) (1.29) (0.68) (0.53) (0.39) (0.38)
-------------- ------------ ------------ ------------ ----------- -----------
Net Asset Value, end of period......... $ 35.31 $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
-------------- ------------ ------------ ------------ ----------- -----------
-------------- ------------ ------------ ------------ ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ 17.48% 32.83% 22.57% 37.06% 1.01% 9.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $3,099.1 $2,448.2 $1,581.4 $1,031.3 $664.5 $615.1
Ratios to average net assets:
Expenses............................. 0.37%(c) 0.37% 0.40% 0.38% 0.42% 0.42%
Net investment income................ 1.28%(c) 1.55% 1.95% 2.27% 2.50% 2.43%
Portfolio turnover rate................ 2% 5% 1% 1% 2% 1%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
94
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
--------------- ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 22.39 $ 18.51 $ 16.27 $ 14.48 $ 15.66 $ 13.67
--------------- ------------ ------------ ------------ ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.28 0.61 0.58 0.64 0.67 0.55
Net realized and unrealized gains
(losses) on investments.............. 1.95 6.06 2.88 2.50 (0.45) 2.46
--------------- ------------ ------------ ------------ ---------- ----------
Total from investment operations... 2.23 6.67 3.46 3.14 0.22 3.01
--------------- ------------ ------------ ------------ ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.17) (0.57) (0.71) (0.62) (0.56) (0.50)
Distributions from net realized
gains................................ (0.37) (2.22) (0.51) (0.73) (0.82) (0.52)
--------------- ------------ ------------ ------------ ---------- ----------
Total distributions................ (0.54) (2.79) (1.22) (1.35) (1.38) (1.02)
--------------- ------------ ------------ ------------ ---------- ----------
Net Asset Value, end of period......... $ 24.08 $ 22.39 $ 18.51 $ 16.27 $ 14.50 $ 15.66
--------------- ------------ ------------ ------------ ---------- ----------
--------------- ------------ ------------ ------------ ---------- ----------
TOTAL INVESTMENT RETURN:(b)............ 9.90% 36.61% 21.74% 21.70% 1.44% 22.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $2,447.0 $2,029.8 $1,363.5 $1,110.0 $859.7 $602.8
Ratios to average net assets:
Expenses............................. 0.42%(c) 0.41% 0.45% 0.43% 0.52% 0.54%
Net investment income................ 2.48%(c) 2.90% 3.36% 4.00% 3.92% 3.56%
Portfolio turnover rate................ 10% 38% 21% 64% 63% 41%
<CAPTION>
EQUITY PORTFOLIO
-------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49 $ 18.90
-------------- ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.32 0.69 0.71 0.55 0.51 0.42
Net realized and unrealized gains on
investments.......................... 3.56 5.88 3.88 5.89 0.05 3.67
-------------- ------------ ------------ ------------ ------------ ------------
Total from investment operations... 3.88 6.57 4.59 6.44 0.56 4.09
-------------- ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.14) (0.70) (0.67) (0.52) (0.49) (0.40)
Distributions from net realized
gains................................ (0.16) (1.76) (2.60) (0.94) (0.90) (1.10)
-------------- ------------ ------------ ------------ ------------ ------------
Total distributions................ (0.30) (2.46) (3.27) (1.46) (1.39) (1.50)
-------------- ------------ ------------ ------------ ------------ ------------
Net Asset Value, end of period......... $ 34.65 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49
-------------- ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN:(b)............ 12.47% 24.66% 18.52% 31.29% 2.78% 21.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $6,706.8 $6,024.0 $4,814.0 $3,813.8 $2,617.8 $2,186.5
Ratios to average net assets:
Expenses............................. 0.46%(c) 0.46% 0.50% 0.48% 0.55% 0.53%
Net investment income................ 1.91%(c) 2.27% 2.54% 2.28% 2.39% 1.99%
Portfolio turnover rate................ 13% 13% 20% 18% 7% 13%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
95
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON PORTFOLIO
----------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, APRIL 25, 1995(d)
JUNE 30, --------------------- TO
1998 1997 1996 DECEMBER 31, 1995(a)
------------ ---------- --------- --------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.73 $ 14.32 $ 12.55 $ 10.00
------------ ---------- --------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.03 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 3.65 4.48 1.78 2.54
------------ ---------- --------- -------
Total from investment operations... 3.68 4.52 1.80 2.56
------------ ---------- --------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.03) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (0.10) (1.07) -- --
------------ ---------- --------- -------
Total distributions................ (0.13) (1.11) (0.03) (0.01)
------------ ---------- --------- -------
Net Asset Value, end of period......... $ 21.28 $ 17.73 $ 14.32 $ 12.55
------------ ---------- --------- -------
------------ ---------- --------- -------
TOTAL INVESTMENT RETURN:(b)............ 20.75% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $826.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.62%(c) 0.64% 0.66% 0.79%(c)
Net investment income................ 0.27%(c) 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 23% 60% 46% 37%
<CAPTION>
GLOBAL PORTFOLIO
----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64 $ 10.37
-------------- ----------- ----------- ----------- ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.07 0.09 0.11 0.06 0.02 0.02
Net realized and unrealized gains
(losses) on investments.............. 3.40 1.11 2.94 2.14 (0.74) 4.44
-------------- ----------- ----------- ----------- ------------ -----------
Total from investment operations... 3.47 1.20 3.05 2.20 (0.72) 4.46
-------------- ----------- ----------- ----------- ------------ -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.07) (0.13) (0.11) (0.24) (0.02) (0.08)
Dividends in excess of net investment
income............................... -- (0.10) -- -- -- --
Distributions from net realized
gains................................ (0.02) (0.90) (0.62) (0.31) (0.02) (0.11)
-------------- ----------- ----------- ----------- ------------ -----------
Total distributions................ (0.09) (1.13) (0.73) (0.55) (0.04) (0.19)
-------------- ----------- ----------- ----------- ------------ -----------
Net Asset Value, end of period......... $ 21.30 $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
-------------- ----------- ----------- ----------- ------------ -----------
-------------- ----------- ----------- ----------- ------------ -----------
TOTAL INVESTMENT RETURN:(b)............ 19.34% 6.98% 19.97% 15.88% (4.89)% 43.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $727.6 $638.4 $580.6 $400.1 $345.7 $129.1
Ratios to average net assets:
Expenses............................. 0.88%(c) 0.85% 0.92% 1.06% 1.23% 1.44%
Net investment income................ 0.63%(c) 0.47% 0.64% 0.44% 0.20% 0.18%
Portfolio turnover rate................ 40% 70% 41% 59% 37% 55%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
(d) Commencement of Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
96
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN, Ph.D. CEO,
THE PRUDENTIAL SERIES VICE PRESIDENT, PRUDENTIAL INVESTMENTS
FUND, INC. KALUDIS CONSULTING
GROUP
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
97
<PAGE>
================================================================================
The toll-free numbers shown below can be used to make transfers and
reallocations, review how your premiums are being allocated and receive current
investment option values in your contract. Unit values for each investment
option are available to all Contract Owners from the toll-free numbers. The
phone lines are open each business day during the hours shown. Please be sure to
have your contract number available when you call.
1-800-356-4050
8 a.m. - 4 p.m. Eastern Time
[MAP OMITTED]
1-800-635-9587
8 a.m. - 4 p.m. Eastern Time
================================================================================
In the past, Contract Owners who held several variable contracts at the same
address received multiple copies of Annual Reports and Semiannual Reports. In an
effort to lessen waste and reduce your fund's expenses of postage and printing,
we will attempt to mail only one copy of this report, based on our current
records for Contract Owners with the same last name and same address. No action
on your part is necessary. Upon request, we will furnish you with additional
reports. The above toll-free numbers should be used to request any additional
copies of the Variable Universal Life Semiannual Report. Proxy material and tax
information will continue to be sent to each account of record.
<PAGE>
[LOGO]
================================================================================
Whether providing insurance protection for home, family and business, or
arranging to cover future education and retirement expenses, Prudential people
have always been able to deliver something more: personal service, quality,
attention to detail and the financial strength of The Rock(R). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
P.O. Box 197 ------------
Minneapolis, MN 55440-0197 Bulk Rate
U.S. Postage
Address Service Requested PAID
Prudential
------------
[RECYCLE LOGO]
VUL SAR 6/98 Printed in the U.S.A. PI-VL-0898-4182
VUL-97 on recycled paper. MRA-1998-A30819
